Correlation Between Amreli Steels and Ittehad Chemicals

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

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

Diversification Opportunities for Amreli Steels and Ittehad Chemicals

0.2

Correlation Coefficient

Amreli Steels  Ittehad Chemicals

Modest diversification

The 3 months correlation between Amreli and Ittehad is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Amreli Steels and Ittehad Chemicals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ittehad Chemicals and Amreli Steels 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 Amreli Steels are associated (or correlated) with Ittehad Chemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ittehad Chemicals has no effect on the direction of Amreli Steels i.e., Amreli Steels and Ittehad Chemicals go up and down completely randomly.

Pair Corralation between Amreli Steels and Ittehad Chemicals

Assuming the 90 days trading horizon Amreli Steels is expected to under-perform the Ittehad Chemicals. In addition to that, Amreli Steels is 1.34 times more volatile than Ittehad Chemicals. It trades about -0.01 of its total potential returns per unit of risk. Ittehad Chemicals is currently generating about 0.1 per unit of volatility. If you would invest  4,805  in Ittehad Chemicals on September 4, 2024 and sell it today you would earn a total of  2,616  from holding Ittehad Chemicals or generate 54.44% return on investment over 90 days.

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

Amreli Steels  vs.  Ittehad Chemicals

Amreli Steels

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Amreli Steels has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Amreli Steels is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Ittehad Chemicals

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Ittehad Chemicals are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Ittehad Chemicals reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Amreli Steels and Ittehad Chemicals

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

The idea behind Amreli Steels and Ittehad Chemicals 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.