Correlation Between Masood Textile and KOT Addu

Can any of the company-specific risk be diversified away by investing in both Masood Textile 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 Masood Textile and KOT Addu into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Masood Textile Mills and KOT Addu Power, you can compare the effects of market volatilities on Masood Textile 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 Masood Textile with a short position of KOT Addu. Check out your portfolio center. Please also check ongoing floating volatility patterns of Masood Textile and KOT Addu.

Diversification Opportunities for Masood Textile and KOT Addu

0.24

Correlation Coefficient

Masood Textile  KOT Addu

Modest diversification

The 3 months correlation between Masood and KOT is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Masood Textile Mills 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 Masood Textile 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 Masood Textile Mills 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 Masood Textile i.e., Masood Textile and KOT Addu go up and down completely randomly.

Pair Corralation between Masood Textile and KOT Addu

Assuming the 90 days trading horizon Masood Textile Mills is expected to generate 2.47 times more return on investment than KOT Addu. However, Masood Textile is 2.47 times more volatile than KOT Addu Power. It trades about 0.03 of its potential returns per unit of risk. KOT Addu Power is currently generating about 0.08 per unit of risk. If you would invest  4,998  in Masood Textile Mills on June 21, 2024 and sell it today you would earn a total of  591.00  from holding Masood Textile Mills or generate 11.82% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	52.59%
Values	Daily Returns

Masood Textile Mills  vs.  KOT Addu Power

Masood Textile Mills

Risk-Adjusted Performance

0 of 100

Modest

Over the last 90 days Masood Textile Mills has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat weak basic indicators, Masood Textile sustained solid returns over the last few months and may actually be approaching a breakup point.

KOT Addu Power

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Masood Textile and KOT Addu

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

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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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.