Correlation Between Oil and Ittehad Chemicals
Can any of the company-specific risk be diversified away by investing in both Oil and Ittehad Chemicals 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 Oil and Ittehad Chemicals into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Oil and Gas and Ittehad Chemicals, you can compare the effects of market volatilities on Oil and Ittehad Chemicals 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 Oil with a short position of Ittehad Chemicals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Oil and Ittehad Chemicals.
Diversification Opportunities for Oil and Ittehad Chemicals
0.64 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Oil and Ittehad is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Oil and Gas and Ittehad Chemicals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ittehad Chemicals and Oil 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 Oil and Gas are associated (or correlated) with Ittehad Chemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ittehad Chemicals has no effect on the direction of Oil i.e., Oil and Ittehad Chemicals go up and down completely randomly.
Pair Corralation between Oil and Ittehad Chemicals
Assuming the 90 days trading horizon Oil and Gas is expected to generate 1.34 times more return on investment than Ittehad Chemicals. However, Oil is 1.34 times more volatile than Ittehad Chemicals. It trades about 0.09 of its potential returns per unit of risk. Ittehad Chemicals is currently generating about 0.1 per unit of risk. If you would invest 7,831 in Oil and Gas on August 27, 2024 and sell it today you would earn a total of 11,638 from holding Oil and Gas or generate 148.61% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 97.05% |
| Values | Daily Returns |
Oil and Gas vs. Ittehad Chemicals
Performance |
| Timeline |
| Oil and Gas |
| Ittehad Chemicals |
Oil and Ittehad Chemicals Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Oil and Ittehad Chemicals
The main advantage of trading using opposite Oil and Ittehad Chemicals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Oil position performs unexpectedly, Ittehad Chemicals 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 Ittehad Chemicals will offset losses from the drop in Ittehad Chemicals' long position.The idea behind Oil and Gas and Ittehad Chemicals 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.| Ittehad Chemicals vs. Masood Textile Mills | Ittehad Chemicals vs. Fauji Foods | Ittehad Chemicals vs. KSB Pumps | Ittehad Chemicals vs. Mari Petroleum |
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 Global Correlations module to find global opportunities by holding instruments from different markets.
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