Correlation Between International Agricultural and Egyptian Chemical

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

By analyzing existing cross correlation between International Agricultural Products and Egyptian Chemical Industries, you can compare the effects of market volatilities on International Agricultural and Egyptian Chemical 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 International Agricultural with a short position of Egyptian Chemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of International Agricultural and Egyptian Chemical.

Diversification Opportunities for International Agricultural and Egyptian Chemical

-0.66

Correlation Coefficient

International Agricultural  Egyptian Chemical

Excellent diversification

The 3 months correlation between International and Egyptian is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding International Agricultural Pro and Egyptian Chemical Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Egyptian Chemical and International Agricultural 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 International Agricultural Products are associated (or correlated) with Egyptian Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Egyptian Chemical has no effect on the direction of International Agricultural i.e., International Agricultural and Egyptian Chemical go up and down completely randomly.

Pair Corralation between International Agricultural and Egyptian Chemical

Assuming the 90 days trading horizon International Agricultural Products is expected to under-perform the Egyptian Chemical. In addition to that, International Agricultural is 1.27 times more volatile than Egyptian Chemical Industries. It trades about -0.25 of its total potential returns per unit of risk. Egyptian Chemical Industries is currently generating about -0.22 per unit of volatility. If you would invest  821.00  in Egyptian Chemical Industries on September 17, 2024 and sell it today you would lose (41.00) from holding Egyptian Chemical Industries or give up 4.99% of portfolio value over 90 days.

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

International Agricultural Pro  vs.  Egyptian Chemical Industries

International Agricultural

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in International Agricultural Products are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, International Agricultural reported solid returns over the last few months and may actually be approaching a breakup point.

Egyptian Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Egyptian Chemical Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with International Agricultural and Egyptian Chemical

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

The idea behind International Agricultural Products and Egyptian Chemical 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.