Correlation Between Paramount Communications and Kothari Petrochemicals

Can any of the company-specific risk be diversified away by investing in both Paramount Communications 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 Paramount Communications and Kothari Petrochemicals into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Paramount Communications Limited and Kothari Petrochemicals Limited, you can compare the effects of market volatilities on Paramount Communications 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 Paramount Communications with a short position of Kothari Petrochemicals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Paramount Communications and Kothari Petrochemicals.

Diversification Opportunities for Paramount Communications and Kothari Petrochemicals

-0.06

Correlation Coefficient

Paramount Communications  Kothari Petrochemicals

Good diversification

The 3 months correlation between Paramount and Kothari is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding Paramount Communications Limit and Kothari Petrochemicals Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kothari Petrochemicals and Paramount Communications 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 Paramount Communications Limited 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 Paramount Communications i.e., Paramount Communications and Kothari Petrochemicals go up and down completely randomly.

Pair Corralation between Paramount Communications and Kothari Petrochemicals

Assuming the 90 days trading horizon Paramount Communications Limited is expected to generate 1.05 times more return on investment than Kothari Petrochemicals. However, Paramount Communications is 1.05 times more volatile than Kothari Petrochemicals Limited. It trades about 0.05 of its potential returns per unit of risk. Kothari Petrochemicals Limited is currently generating about -0.08 per unit of risk. If you would invest  7,028  in Paramount Communications Limited on October 24, 2024 and sell it today you would earn a total of  422.00  from holding Paramount Communications Limited or generate 6.0% return on investment over 90 days.

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

Paramount Communications Limit  vs.  Kothari Petrochemicals Limited

Paramount Communications

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Paramount Communications Limited are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain essential indicators, Paramount Communications may actually be approaching a critical reversion point that can send shares even higher in February 2025.

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 Paramount Communications and Kothari Petrochemicals

The main advantage of trading using opposite Paramount Communications and Kothari Petrochemicals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Paramount Communications 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 Paramount Communications Limited 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.

Check out your portfolio center.

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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.