Correlation Between Agarwal Industrial and Neogen Chemicals

Can any of the company-specific risk be diversified away by investing in both Agarwal Industrial and Neogen 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 Agarwal Industrial and Neogen Chemicals into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Agarwal Industrial and Neogen Chemicals Limited, you can compare the effects of market volatilities on Agarwal Industrial and Neogen 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 Agarwal Industrial with a short position of Neogen Chemicals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Agarwal Industrial and Neogen Chemicals.

Diversification Opportunities for Agarwal Industrial and Neogen Chemicals

-0.39

Correlation Coefficient

Agarwal Industrial  Neogen Chemicals

Very good diversification

The 3 months correlation between Agarwal and Neogen is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Agarwal Industrial and Neogen Chemicals Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Neogen Chemicals and Agarwal Industrial 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 Agarwal Industrial are associated (or correlated) with Neogen Chemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Neogen Chemicals has no effect on the direction of Agarwal Industrial i.e., Agarwal Industrial and Neogen Chemicals go up and down completely randomly.

Pair Corralation between Agarwal Industrial and Neogen Chemicals

Assuming the 90 days trading horizon Agarwal Industrial is expected to generate 41.23 times less return on investment than Neogen Chemicals. But when comparing it to its historical volatility, Agarwal Industrial is 1.65 times less risky than Neogen Chemicals. It trades about 0.01 of its potential returns per unit of risk. Neogen Chemicals Limited is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  149,157  in Neogen Chemicals Limited on September 5, 2024 and sell it today you would earn a total of  65,553  from holding Neogen Chemicals Limited or generate 43.95% return on investment over 90 days.

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

Agarwal Industrial  vs.  Neogen Chemicals Limited

Agarwal Industrial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Agarwal Industrial has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound forward indicators, Agarwal Industrial is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Neogen Chemicals

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Neogen Chemicals Limited are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain technical and fundamental indicators, Neogen Chemicals sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Agarwal Industrial and Neogen Chemicals

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

The idea behind Agarwal Industrial and Neogen Chemicals Limited 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.