Correlation Between India Glycols and Prakash Industries

Can any of the company-specific risk be diversified away by investing in both India Glycols and Prakash Industries 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 India Glycols and Prakash Industries into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for India Glycols and Prakash Industries

0.57

Correlation Coefficient

India Glycols  Prakash Industries

Very weak diversification

The 3 months correlation between India and Prakash is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding India Glycols Limited and Prakash Industries Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prakash Industries and India Glycols 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 India Glycols Limited are associated (or correlated) with Prakash Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prakash Industries has no effect on the direction of India Glycols i.e., India Glycols and Prakash Industries go up and down completely randomly.

Pair Corralation between India Glycols and Prakash Industries

Assuming the 90 days trading horizon India Glycols Limited is expected to under-perform the Prakash Industries. But the stock apears to be less risky and, when comparing its historical volatility, India Glycols Limited is 2.23 times less risky than Prakash Industries. The stock trades about -0.14 of its potential returns per unit of risk. The Prakash Industries Limited is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  17,090  in Prakash Industries Limited on February 28, 2024 and sell it today you would lose (610.00) from holding Prakash Industries Limited or give up 3.57% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.0%
Values	Daily Returns

India Glycols Limited  vs.  Prakash Industries Limited

India Glycols Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days India Glycols Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, India Glycols is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Prakash Industries

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Prakash Industries Limited are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, Prakash Industries is not utilizing all of its potentials. The newest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with India Glycols and Prakash Industries

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

The idea behind India Glycols Limited and Prakash Industries 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.