Correlation Between Southern Petrochemicals and Lakshmi Finance
Can any of the company-specific risk be diversified away by investing in both Southern Petrochemicals and Lakshmi Finance 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 Southern Petrochemicals and Lakshmi Finance into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Southern Petrochemicals Industries and Lakshmi Finance Industrial, you can compare the effects of market volatilities on Southern Petrochemicals and Lakshmi Finance 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 Southern Petrochemicals with a short position of Lakshmi Finance. Check out your portfolio center. Please also check ongoing floating volatility patterns of Southern Petrochemicals and Lakshmi Finance.
Diversification Opportunities for Southern Petrochemicals and Lakshmi Finance
0.27 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Southern and Lakshmi is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Southern Petrochemicals Indust and Lakshmi Finance Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lakshmi Finance Indu and Southern Petrochemicals 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 Southern Petrochemicals Industries are associated (or correlated) with Lakshmi Finance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lakshmi Finance Indu has no effect on the direction of Southern Petrochemicals i.e., Southern Petrochemicals and Lakshmi Finance go up and down completely randomly.
Pair Corralation between Southern Petrochemicals and Lakshmi Finance
Assuming the 90 days trading horizon Southern Petrochemicals is expected to generate 3.69 times less return on investment than Lakshmi Finance. But when comparing it to its historical volatility, Southern Petrochemicals Industries is 1.58 times less risky than Lakshmi Finance. It trades about 0.02 of its potential returns per unit of risk. Lakshmi Finance Industrial is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 11,110 in Lakshmi Finance Industrial on November 5, 2024 and sell it today you would earn a total of 10,722 from holding Lakshmi Finance Industrial or generate 96.51% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Southern Petrochemicals Indust vs. Lakshmi Finance Industrial
Performance |
| Timeline |
| Southern Petrochemicals |
| Lakshmi Finance Indu |
Southern Petrochemicals and Lakshmi Finance Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Southern Petrochemicals and Lakshmi Finance
The main advantage of trading using opposite Southern Petrochemicals and Lakshmi Finance positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Southern Petrochemicals position performs unexpectedly, Lakshmi Finance 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 Lakshmi Finance will offset losses from the drop in Lakshmi Finance's long position.The idea behind Southern Petrochemicals Industries and Lakshmi Finance Industrial 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.
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