Correlation Between Aban Offshore and Southern Petrochemicals

Can any of the company-specific risk be diversified away by investing in both Aban Offshore and Southern Petrochemicals 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 Aban Offshore and Southern Petrochemicals into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Aban Offshore Limited and Southern Petrochemicals Industries, you can compare the effects of market volatilities on Aban Offshore and Southern Petrochemicals 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 Aban Offshore with a short position of Southern Petrochemicals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aban Offshore and Southern Petrochemicals.

Diversification Opportunities for Aban Offshore and Southern Petrochemicals

0.84

Correlation Coefficient

Aban Offshore  Southern Petrochemicals

Very poor diversification

The 3 months correlation between Aban and Southern is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Aban Offshore Limited and Southern Petrochemicals Indust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southern Petrochemicals and Aban Offshore 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 Aban Offshore Limited are associated (or correlated) with Southern Petrochemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Southern Petrochemicals has no effect on the direction of Aban Offshore i.e., Aban Offshore and Southern Petrochemicals go up and down completely randomly.

Pair Corralation between Aban Offshore and Southern Petrochemicals

Assuming the 90 days trading horizon Aban Offshore Limited is expected to generate 1.28 times more return on investment than Southern Petrochemicals. However, Aban Offshore is 1.28 times more volatile than Southern Petrochemicals Industries. It trades about 0.01 of its potential returns per unit of risk. Southern Petrochemicals Industries is currently generating about -0.04 per unit of risk. If you would invest  6,335  in Aban Offshore Limited on September 28, 2024 and sell it today you would lose (42.00) from holding Aban Offshore Limited or give up 0.66% of portfolio value over 90 days.

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

Aban Offshore Limited  vs.  Southern Petrochemicals Indust

Aban Offshore Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aban Offshore Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Southern Petrochemicals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Southern Petrochemicals Industries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Aban Offshore and Southern Petrochemicals

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

The idea behind Aban Offshore Limited and Southern Petrochemicals 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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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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.