Correlation Between Southern Petrochemicals and Kamat Hotels

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

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

Diversification Opportunities for Southern Petrochemicals and Kamat Hotels

-0.23

Correlation Coefficient

Southern Petrochemicals  Kamat Hotels

Very good diversification

The 3 months correlation between Southern and Kamat is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Southern Petrochemicals Indust and Kamat Hotels Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kamat Hotels Limited and Southern Petrochemicals 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 Southern Petrochemicals Industries are associated (or correlated) with Kamat Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kamat Hotels Limited has no effect on the direction of Southern Petrochemicals i.e., Southern Petrochemicals and Kamat Hotels go up and down completely randomly.

Pair Corralation between Southern Petrochemicals and Kamat Hotels

Assuming the 90 days trading horizon Southern Petrochemicals is expected to generate 4.47 times less return on investment than Kamat Hotels. But when comparing it to its historical volatility, Southern Petrochemicals Industries is 1.64 times less risky than Kamat Hotels. It trades about 0.15 of its potential returns per unit of risk. Kamat Hotels Limited is currently generating about 0.41 of returns per unit of risk over similar time horizon. If you would invest  19,429  in Kamat Hotels Limited on September 21, 2024 and sell it today you would earn a total of  4,778  from holding Kamat Hotels Limited or generate 24.59% return on investment over 90 days.

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

Southern Petrochemicals Indust  vs.  Kamat Hotels Limited

Southern Petrochemicals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Southern Petrochemicals Industries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Kamat Hotels Limited

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Kamat Hotels Limited are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Kamat Hotels displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Southern Petrochemicals and Kamat Hotels

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

The idea behind Southern Petrochemicals Industries and Kamat Hotels 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.