Correlation Between Servotech Power and Kalyani Steels

Can any of the company-specific risk be diversified away by investing in both Servotech Power 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 Servotech Power and Kalyani Steels into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Servotech Power Systems and Kalyani Steels Limited, you can compare the effects of market volatilities on Servotech Power 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 Servotech Power with a short position of Kalyani Steels. Check out your portfolio center. Please also check ongoing floating volatility patterns of Servotech Power and Kalyani Steels.

Diversification Opportunities for Servotech Power and Kalyani Steels

0.02

Correlation Coefficient

Servotech Power  Kalyani Steels

Significant diversification

The 3 months correlation between Servotech and Kalyani is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Servotech Power Systems and Kalyani Steels Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kalyani Steels and Servotech Power 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 Servotech Power Systems 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 Servotech Power i.e., Servotech Power and Kalyani Steels go up and down completely randomly.

Pair Corralation between Servotech Power and Kalyani Steels

Assuming the 90 days trading horizon Servotech Power Systems is expected to generate 1.43 times more return on investment than Kalyani Steels. However, Servotech Power is 1.43 times more volatile than Kalyani Steels Limited. It trades about 0.11 of its potential returns per unit of risk. Kalyani Steels Limited is currently generating about 0.11 per unit of risk. If you would invest  3,157  in Servotech Power Systems on September 20, 2024 and sell it today you would earn a total of  13,873  from holding Servotech Power Systems or generate 439.44% return on investment over 90 days.

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

Servotech Power Systems  vs.  Kalyani Steels Limited

Servotech Power Systems

Risk-Adjusted Performance

0 of 100

Weak

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

Kalyani Steels

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Kalyani Steels Limited are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady 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 Servotech Power and Kalyani Steels

The main advantage of trading using opposite Servotech Power and Kalyani Steels positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Servotech Power 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 Servotech Power Systems 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.

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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.