Correlation Between Newgen Software and Kalyani Steels

Can any of the company-specific risk be diversified away by investing in both Newgen Software and Kalyani Steels 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 Kalyani Steels 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 Kalyani Steels Limited, you can compare the effects of market volatilities on Newgen Software and Kalyani Steels 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 Kalyani Steels. Check out your portfolio center. Please also check ongoing floating volatility patterns of Newgen Software and Kalyani Steels.

Diversification Opportunities for Newgen Software and Kalyani Steels

0.71

Correlation Coefficient

Newgen Software  Kalyani Steels

Poor diversification

The 3 months correlation between Newgen and Kalyani is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Newgen Software Technologies and Kalyani Steels Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kalyani Steels 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 Kalyani Steels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kalyani Steels has no effect on the direction of Newgen Software i.e., Newgen Software and Kalyani Steels go up and down completely randomly.

Pair Corralation between Newgen Software and Kalyani Steels

Assuming the 90 days trading horizon Newgen Software is expected to generate 1.4 times less return on investment than Kalyani Steels. But when comparing it to its historical volatility, Newgen Software Technologies is 1.44 times less risky than Kalyani Steels. It trades about 0.61 of its potential returns per unit of risk. Kalyani Steels Limited is currently generating about 0.6 of returns per unit of risk over similar time horizon. If you would invest  75,410  in Kalyani Steels Limited on September 19, 2024 and sell it today you would earn a total of  48,850  from holding Kalyani Steels Limited or generate 64.78% return on investment over 90 days.

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

Newgen Software Technologies  vs.  Kalyani Steels Limited

Newgen Software Tech

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Newgen Software Technologies are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating technical and fundamental indicators, Newgen Software sustained solid returns over the last few months and may actually be approaching a breakup point.

Kalyani Steels

Risk-Adjusted Performance

18 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Kalyani Steels Limited are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak technical and fundamental indicators, Kalyani Steels exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Newgen Software and Kalyani Steels

The main advantage of trading using opposite Newgen Software and Kalyani Steels positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Newgen Software position performs unexpectedly, Kalyani Steels 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 Kalyani Steels will offset losses from the drop in Kalyani Steels' long position.

The idea behind Newgen Software Technologies and Kalyani Steels 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.