Correlation Between Rama Steel and Khaitan Chemicals

Can any of the company-specific risk be diversified away by investing in both Rama Steel and Khaitan Chemicals 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 Rama Steel and Khaitan Chemicals into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Rama Steel Tubes and Khaitan Chemicals Fertilizers, you can compare the effects of market volatilities on Rama Steel and Khaitan Chemicals 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 Rama Steel with a short position of Khaitan Chemicals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rama Steel and Khaitan Chemicals.

Diversification Opportunities for Rama Steel and Khaitan Chemicals

0.55

Correlation Coefficient

Rama Steel  Khaitan Chemicals

Very weak diversification

The 3 months correlation between Rama and Khaitan is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Rama Steel Tubes and Khaitan Chemicals Fertilizers in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Khaitan Chemicals and Rama Steel 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 Rama Steel Tubes are associated (or correlated) with Khaitan Chemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Khaitan Chemicals has no effect on the direction of Rama Steel i.e., Rama Steel and Khaitan Chemicals go up and down completely randomly.

Pair Corralation between Rama Steel and Khaitan Chemicals

Assuming the 90 days trading horizon Rama Steel Tubes is expected to generate 4.63 times more return on investment than Khaitan Chemicals. However, Rama Steel is 4.63 times more volatile than Khaitan Chemicals Fertilizers. It trades about 0.04 of its potential returns per unit of risk. Khaitan Chemicals Fertilizers is currently generating about 0.02 per unit of risk. If you would invest  1,220  in Rama Steel Tubes on October 23, 2024 and sell it today you would lose (31.00) from holding Rama Steel Tubes or give up 2.54% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.79%
Values	Daily Returns

Rama Steel Tubes  vs.  Khaitan Chemicals Fertilizers

Rama Steel Tubes

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Rama Steel Tubes has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Rama Steel is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Khaitan Chemicals

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Khaitan Chemicals Fertilizers are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical indicators, Khaitan Chemicals is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Rama Steel and Khaitan Chemicals

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

The idea behind Rama Steel Tubes and Khaitan Chemicals Fertilizers 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.