Correlation Between Premier Insurance and KOT Addu

Can any of the company-specific risk be diversified away by investing in both Premier Insurance and KOT Addu 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 Premier Insurance and KOT Addu into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Premier Insurance and KOT Addu Power, you can compare the effects of market volatilities on Premier Insurance and KOT Addu 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 Premier Insurance with a short position of KOT Addu. Check out your portfolio center. Please also check ongoing floating volatility patterns of Premier Insurance and KOT Addu.

Diversification Opportunities for Premier Insurance and KOT Addu

-0.48

Correlation Coefficient

Premier Insurance  KOT Addu

Very good diversification

The 3 months correlation between Premier and KOT is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Premier Insurance and KOT Addu Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KOT Addu Power and Premier Insurance 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 Premier Insurance are associated (or correlated) with KOT Addu. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KOT Addu Power has no effect on the direction of Premier Insurance i.e., Premier Insurance and KOT Addu go up and down completely randomly.

Pair Corralation between Premier Insurance and KOT Addu

Assuming the 90 days trading horizon Premier Insurance is expected to under-perform the KOT Addu. In addition to that, Premier Insurance is 3.03 times more volatile than KOT Addu Power. It trades about -0.22 of its total potential returns per unit of risk. KOT Addu Power is currently generating about -0.15 per unit of volatility. If you would invest  3,893  in KOT Addu Power on October 8, 2024 and sell it today you would lose (117.00) from holding KOT Addu Power or give up 3.01% of portfolio value over 90 days.

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

Premier Insurance  vs.  KOT Addu Power

Premier Insurance

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Premier Insurance has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

KOT Addu Power

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in KOT Addu Power are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, KOT Addu disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Premier Insurance and KOT Addu

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

The idea behind Premier Insurance and KOT Addu Power 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.