Correlation Between International Agricultural and Misr Chemical
Can any of the company-specific risk be diversified away by investing in both International Agricultural and Misr Chemical 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 International Agricultural and Misr Chemical into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between International Agricultural Products and Misr Chemical Industries, you can compare the effects of market volatilities on International Agricultural and Misr Chemical 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 International Agricultural with a short position of Misr Chemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of International Agricultural and Misr Chemical.
Diversification Opportunities for International Agricultural and Misr Chemical
0.72 | Correlation Coefficient |
Poor diversification
The 3 months correlation between International and Misr is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding International Agricultural Pro and Misr Chemical Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Misr Chemical Industries and International Agricultural 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 International Agricultural Products are associated (or correlated) with Misr Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Misr Chemical Industries has no effect on the direction of International Agricultural i.e., International Agricultural and Misr Chemical go up and down completely randomly.
Pair Corralation between International Agricultural and Misr Chemical
Assuming the 90 days trading horizon International Agricultural Products is expected to generate 0.65 times more return on investment than Misr Chemical. However, International Agricultural Products is 1.54 times less risky than Misr Chemical. It trades about 0.18 of its potential returns per unit of risk. Misr Chemical Industries is currently generating about -0.23 per unit of risk. If you would invest 1,740 in International Agricultural Products on September 4, 2024 and sell it today you would earn a total of 138.00 from holding International Agricultural Products or generate 7.93% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
International Agricultural Pro vs. Misr Chemical Industries
Performance |
| Timeline |
| International Agricultural |
| Misr Chemical Industries |
International Agricultural and Misr Chemical Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with International Agricultural and Misr Chemical
The main advantage of trading using opposite International Agricultural and Misr Chemical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if International Agricultural position performs unexpectedly, Misr Chemical 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 Misr Chemical will offset losses from the drop in Misr Chemical's long position.The idea behind International Agricultural Products and Misr Chemical Industries 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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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 Money Managers module to screen money managers from public funds and ETFs managed around the world.
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