Correlation Between Garuda Construction and IG Petrochemicals

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

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

Diversification Opportunities for Garuda Construction and IG Petrochemicals

0.45

Correlation Coefficient

Garuda Construction  IG Petrochemicals

Very weak diversification

The 3 months correlation between Garuda and IGPL is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Garuda Construction Engineerin and IG Petrochemicals Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IG Petrochemicals and Garuda Construction 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 Garuda Construction Engineering are associated (or correlated) with IG Petrochemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IG Petrochemicals has no effect on the direction of Garuda Construction i.e., Garuda Construction and IG Petrochemicals go up and down completely randomly.

Pair Corralation between Garuda Construction and IG Petrochemicals

Assuming the 90 days trading horizon Garuda Construction Engineering is expected to generate 1.66 times more return on investment than IG Petrochemicals. However, Garuda Construction is 1.66 times more volatile than IG Petrochemicals Limited. It trades about 0.05 of its potential returns per unit of risk. IG Petrochemicals Limited is currently generating about -0.01 per unit of risk. If you would invest  10,636  in Garuda Construction Engineering on September 27, 2024 and sell it today you would earn a total of  657.00  from holding Garuda Construction Engineering or generate 6.18% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	82.26%
Values	Daily Returns

Garuda Construction Engineerin  vs.  IG Petrochemicals Limited

Garuda Construction

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Garuda Construction Engineering are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady basic indicators, Garuda Construction sustained solid returns over the last few months and may actually be approaching a breakup point.

IG Petrochemicals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days IG Petrochemicals Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, IG Petrochemicals is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Garuda Construction and IG Petrochemicals

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

The idea behind Garuda Construction Engineering and IG Petrochemicals 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.