Correlation Between National Plastic and Lion Chemtech

Can any of the company-specific risk be diversified away by investing in both National Plastic and Lion Chemtech 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 National Plastic and Lion Chemtech into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between National Plastic Co and Lion Chemtech Co, you can compare the effects of market volatilities on National Plastic and Lion Chemtech 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 National Plastic with a short position of Lion Chemtech. Check out your portfolio center. Please also check ongoing floating volatility patterns of National Plastic and Lion Chemtech.

Diversification Opportunities for National Plastic and Lion Chemtech

-0.01

Correlation Coefficient

National Plastic  Lion Chemtech

Good diversification

The 3 months correlation between National and Lion is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding National Plastic Co and Lion Chemtech Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lion Chemtech and National Plastic 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 National Plastic Co are associated (or correlated) with Lion Chemtech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lion Chemtech has no effect on the direction of National Plastic i.e., National Plastic and Lion Chemtech go up and down completely randomly.

Pair Corralation between National Plastic and Lion Chemtech

Assuming the 90 days trading horizon National Plastic is expected to generate 3.79 times less return on investment than Lion Chemtech. But when comparing it to its historical volatility, National Plastic Co is 2.54 times less risky than Lion Chemtech. It trades about 0.07 of its potential returns per unit of risk. Lion Chemtech Co is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  217,500  in Lion Chemtech Co on September 16, 2024 and sell it today you would earn a total of  39,000  from holding Lion Chemtech Co or generate 17.93% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

National Plastic Co  vs.  Lion Chemtech Co

National Plastic

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in National Plastic Co are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, National Plastic is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Lion Chemtech

Risk-Adjusted Performance

7 of 100

OK

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

Pair Trading with National Plastic and Lion Chemtech

The main advantage of trading using opposite National Plastic and Lion Chemtech positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if National Plastic position performs unexpectedly, Lion Chemtech 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 Lion Chemtech will offset losses from the drop in Lion Chemtech's long position.

The idea behind National Plastic Co and Lion Chemtech Co 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.