Correlation Between EPL and Modi Rubber

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

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

Diversification Opportunities for EPL and Modi Rubber

0.04

Correlation Coefficient

EPL  Modi Rubber

Significant diversification

The 3 months correlation between EPL and Modi is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding EPL Limited and Modi Rubber Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Modi Rubber Limited and EPL 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 EPL Limited are associated (or correlated) with Modi Rubber. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Modi Rubber Limited has no effect on the direction of EPL i.e., EPL and Modi Rubber go up and down completely randomly.

Pair Corralation between EPL and Modi Rubber

Assuming the 90 days trading horizon EPL is expected to generate 1.48 times less return on investment than Modi Rubber. But when comparing it to its historical volatility, EPL Limited is 2.17 times less risky than Modi Rubber. It trades about 0.13 of its potential returns per unit of risk. Modi Rubber Limited is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  10,478  in Modi Rubber Limited on April 20, 2025 and sell it today you would earn a total of  2,311  from holding Modi Rubber Limited or generate 22.06% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.46%
Values	Daily Returns

EPL Limited  vs.  Modi Rubber Limited

EPL Limited

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in EPL Limited are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, EPL exhibited solid returns over the last few months and may actually be approaching a breakup point.

Modi Rubber Limited

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Modi Rubber Limited are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental drivers, Modi Rubber sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with EPL and Modi Rubber

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

The idea behind EPL Limited and Modi Rubber 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.