Correlation Between Arad Investment and Petrochemical

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

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

Diversification Opportunities for Arad Investment and Petrochemical

0.28

Correlation Coefficient

Arad Investment  Petrochemical

Modest diversification

The 3 months correlation between Arad and Petrochemical is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Arad Investment Industrial and Petrochemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Petrochemical and Arad Investment 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 Arad Investment Industrial are associated (or correlated) with Petrochemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Petrochemical has no effect on the direction of Arad Investment i.e., Arad Investment and Petrochemical go up and down completely randomly.

Pair Corralation between Arad Investment and Petrochemical

Assuming the 90 days trading horizon Arad Investment Industrial is expected to generate 1.21 times more return on investment than Petrochemical. However, Arad Investment is 1.21 times more volatile than Petrochemical. It trades about 0.51 of its potential returns per unit of risk. Petrochemical is currently generating about 0.05 per unit of risk. If you would invest  825,900  in Arad Investment Industrial on September 17, 2024 and sell it today you would earn a total of  804,100  from holding Arad Investment Industrial or generate 97.36% return on investment over 90 days.

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

Arad Investment Industrial  vs.  Petrochemical

Arad Investment Indu

Risk-Adjusted Performance

39 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Arad Investment Industrial are ranked lower than 39 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Arad Investment sustained solid returns over the last few months and may actually be approaching a breakup point.

Petrochemical

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Petrochemical are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Petrochemical may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Arad Investment and Petrochemical

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

The idea behind Arad Investment Industrial and Petrochemical 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.