Correlation Between Petrochemical and Identi Healthcare

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Can any of the company-specific risk be diversified away by investing in both Petrochemical and Identi Healthcare 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 Petrochemical and Identi Healthcare into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Petrochemical and Identi Healthcare, you can compare the effects of market volatilities on Petrochemical and Identi Healthcare 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 Petrochemical with a short position of Identi Healthcare. Check out your portfolio center. Please also check ongoing floating volatility patterns of Petrochemical and Identi Healthcare.

Diversification Opportunities for Petrochemical and Identi Healthcare

0.8
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Petrochemical and Identi is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Petrochemical and Identi Healthcare in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Identi Healthcare and Petrochemical 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 Petrochemical are associated (or correlated) with Identi Healthcare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Identi Healthcare has no effect on the direction of Petrochemical i.e., Petrochemical and Identi Healthcare go up and down completely randomly.

Pair Corralation between Petrochemical and Identi Healthcare

Assuming the 90 days trading horizon Petrochemical is expected to generate 1.57 times less return on investment than Identi Healthcare. But when comparing it to its historical volatility, Petrochemical is 2.71 times less risky than Identi Healthcare. It trades about 0.05 of its potential returns per unit of risk. Identi Healthcare is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  37,160  in Identi Healthcare on November 27, 2024 and sell it today you would lose (2,600) from holding Identi Healthcare or give up 7.0% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Petrochemical  vs.  Identi Healthcare

 Performance 
       Timeline  
Petrochemical 

Risk-Adjusted Performance

OK

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Petrochemical are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Petrochemical sustained solid returns over the last few months and may actually be approaching a breakup point.
Identi Healthcare 

Risk-Adjusted Performance

Good

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Identi Healthcare are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Identi Healthcare sustained solid returns over the last few months and may actually be approaching a breakup point.

Petrochemical and Identi Healthcare Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Petrochemical and Identi Healthcare

The main advantage of trading using opposite Petrochemical and Identi Healthcare positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Petrochemical position performs unexpectedly, Identi Healthcare 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 Identi Healthcare will offset losses from the drop in Identi Healthcare's long position.
The idea behind Petrochemical and Identi Healthcare 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.
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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.

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