Correlation Between TPL Insurance and KOT Addu

Can any of the company-specific risk be diversified away by investing in both TPL 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 TPL 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 TPL Insurance and KOT Addu Power, you can compare the effects of market volatilities on TPL 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 TPL Insurance with a short position of KOT Addu. Check out your portfolio center. Please also check ongoing floating volatility patterns of TPL Insurance and KOT Addu.

Diversification Opportunities for TPL Insurance and KOT Addu

0.37

Correlation Coefficient

TPL Insurance  KOT Addu

Weak diversification

The 3 months correlation between TPL and KOT is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding TPL 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 TPL 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 TPL 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 TPL Insurance i.e., TPL Insurance and KOT Addu go up and down completely randomly.

Pair Corralation between TPL Insurance and KOT Addu

Assuming the 90 days trading horizon TPL Insurance is expected to generate 12.96 times less return on investment than KOT Addu. In addition to that, TPL Insurance is 1.4 times more volatile than KOT Addu Power. It trades about 0.01 of its total potential returns per unit of risk. KOT Addu Power is currently generating about 0.23 per unit of volatility. If you would invest  2,749  in KOT Addu Power on September 12, 2024 and sell it today you would earn a total of  1,046  from holding KOT Addu Power or generate 38.05% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.41%
Values	Daily Returns

TPL Insurance  vs.  KOT Addu Power

TPL Insurance

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in TPL Insurance are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, TPL Insurance is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

KOT Addu Power

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in KOT Addu Power are ranked lower than 18 (%) 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 TPL Insurance and KOT Addu

The main advantage of trading using opposite TPL Insurance and KOT Addu positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if TPL 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 TPL 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.

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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.