Correlation Between KIOCL and Bharat Forge

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Can any of the company-specific risk be diversified away by investing in both KIOCL and Bharat Forge 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 KIOCL and Bharat Forge into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between KIOCL Limited and Bharat Forge Limited, you can compare the effects of market volatilities on KIOCL and Bharat Forge 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 KIOCL with a short position of Bharat Forge. Check out your portfolio center. Please also check ongoing floating volatility patterns of KIOCL and Bharat Forge.

Diversification Opportunities for KIOCL and Bharat Forge

0.67
  Correlation Coefficient

Poor diversification

The 3 months correlation between KIOCL and Bharat is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding KIOCL Limited and Bharat Forge Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bharat Forge Limited and KIOCL 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 KIOCL Limited are associated (or correlated) with Bharat Forge. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bharat Forge Limited has no effect on the direction of KIOCL i.e., KIOCL and Bharat Forge go up and down completely randomly.

Pair Corralation between KIOCL and Bharat Forge

Assuming the 90 days trading horizon KIOCL Limited is expected to generate 3.25 times more return on investment than Bharat Forge. However, KIOCL is 3.25 times more volatile than Bharat Forge Limited. It trades about 0.16 of its potential returns per unit of risk. Bharat Forge Limited is currently generating about -0.16 per unit of risk. If you would invest  32,150  in KIOCL Limited on September 5, 2024 and sell it today you would earn a total of  5,075  from holding KIOCL Limited or generate 15.79% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy95.45%
ValuesDaily Returns

KIOCL Limited  vs.  Bharat Forge Limited

 Performance 
       Timeline  
KIOCL Limited 

Risk-Adjusted Performance

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Over the last 90 days KIOCL Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, KIOCL is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.
Bharat Forge Limited 

Risk-Adjusted Performance

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Weak
 
Strong
Very Weak
Over the last 90 days Bharat Forge Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

KIOCL and Bharat Forge Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with KIOCL and Bharat Forge

The main advantage of trading using opposite KIOCL and Bharat Forge positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if KIOCL position performs unexpectedly, Bharat Forge 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 Bharat Forge will offset losses from the drop in Bharat Forge's long position.
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The idea behind KIOCL Limited and Bharat Forge 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.

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