Correlation Between State Bank and Modi Rubber

Can any of the company-specific risk be diversified away by investing in both State Bank and Modi Rubber 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 State Bank and Modi Rubber into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for State Bank and Modi Rubber

0.06

Correlation Coefficient

State Bank  Modi Rubber

Significant diversification

The 3 months correlation between State and Modi is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding State Bank of and Modi Rubber Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Modi Rubber Limited and State Bank 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 State Bank of are associated (or correlated) with Modi Rubber. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Modi Rubber Limited has no effect on the direction of State Bank i.e., State Bank and Modi Rubber go up and down completely randomly.

Pair Corralation between State Bank and Modi Rubber

Assuming the 90 days trading horizon State Bank of is expected to generate 0.74 times more return on investment than Modi Rubber. However, State Bank of is 1.36 times less risky than Modi Rubber. It trades about 0.05 of its potential returns per unit of risk. Modi Rubber Limited is currently generating about 0.0 per unit of risk. If you would invest  77,065  in State Bank of on October 5, 2024 and sell it today you would earn a total of  3,055  from holding State Bank of or generate 3.96% return on investment over 90 days.

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

State Bank of  vs.  Modi Rubber Limited

State Bank

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in State Bank of are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, State Bank is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Modi Rubber Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Modi Rubber Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental drivers, Modi Rubber is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with State Bank and Modi Rubber

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

The idea behind State Bank of and Modi Rubber 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.