Correlation Between Newgen Software and Kothari Petrochemicals

Can any of the company-specific risk be diversified away by investing in both Newgen Software and Kothari Petrochemicals at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Newgen Software and Kothari Petrochemicals into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Newgen Software Technologies and Kothari Petrochemicals Limited, you can compare the effects of market volatilities on Newgen Software and Kothari Petrochemicals and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Newgen Software with a short position of Kothari Petrochemicals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Newgen Software and Kothari Petrochemicals.

Diversification Opportunities for Newgen Software and Kothari Petrochemicals

-0.1

Correlation Coefficient

Newgen Software  Kothari Petrochemicals

Good diversification

The 3 months correlation between Newgen and Kothari is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding Newgen Software Technologies and Kothari Petrochemicals Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kothari Petrochemicals and Newgen Software is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Newgen Software Technologies are associated (or correlated) with Kothari Petrochemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kothari Petrochemicals has no effect on the direction of Newgen Software i.e., Newgen Software and Kothari Petrochemicals go up and down completely randomly.

Pair Corralation between Newgen Software and Kothari Petrochemicals

Assuming the 90 days trading horizon Newgen Software Technologies is expected to generate 1.39 times more return on investment than Kothari Petrochemicals. However, Newgen Software is 1.39 times more volatile than Kothari Petrochemicals Limited. It trades about 0.14 of its potential returns per unit of risk. Kothari Petrochemicals Limited is currently generating about -0.09 per unit of risk. If you would invest  124,930  in Newgen Software Technologies on October 8, 2024 and sell it today you would earn a total of  39,470  from holding Newgen Software Technologies or generate 31.59% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Newgen Software Technologies  vs.  Kothari Petrochemicals Limited

Newgen Software Tech

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Newgen Software Technologies are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain technical and fundamental indicators, Newgen Software sustained solid returns over the last few months and may actually be approaching a breakup point.

Kothari Petrochemicals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Kothari Petrochemicals Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in February 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Newgen Software and Kothari Petrochemicals

The main advantage of trading using opposite Newgen Software and Kothari Petrochemicals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Newgen Software position performs unexpectedly, Kothari Petrochemicals can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Kothari Petrochemicals will offset losses from the drop in Kothari Petrochemicals' long position.

The idea behind Newgen Software Technologies and Kothari Petrochemicals Limited pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.