Can we hedge against RM volatility from combination plays ?

This includes two of my recent purchases, Balkrishna Industries (BKT) and Gujarat Reclaim & Rubber (GRP).

While looking at natural rubber prices being a key monitorable for BKT , one might wonder whether any combination play might help up remove this volatility.

This is because natural rubber being the key raw material, effects the pricing and margins of tyre manufacturers like BKT. So higher natural rubber prices should hit margins and hit profitability. ( Negative correlation)

Whereas high prices of natural rubber are good for the reclaim rubber industry as it leads to increased substitution of natural rubber with reclaim rubber. Hence, high natural rubber prices are good for GRP. (Positive correlation)

Therefore I was thinking can a combination play on BKT and GRP hedge us naturally against natural rubber price volatility (to some extent, if at all). Point to note here is that each of them merit investment by their own accord given their superior fundamentals and growth ahead. However, we are trying to analyze an additional angle from the portfolio perspective.

Chart 1: Monthly Rubber Prices ( Oct 2007 - Oct 2012)

 

Chart 2: BKT Operating Margin Trend ( Sep 2007 - Sep 2012)

Chart 3: GRP Operating Margin Trend ( Sep 2007 - Sep 2012)

From the charts it is evident that while Balkrishna Industries (BKT) has a proper negative correlation with rubber prices which is seen directly from the margin trend, there is no proper positive correlation of natural rubber prices with GRP. 

So the combination play won't work as natural hedge. However, GRP margins being unaffected during even lower rubber price cycles, both stocks should do well in  period of  softening natural rubber prices.