Correlation Between Misr Chemical and Arab Aluminum

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

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

Diversification Opportunities for Misr Chemical and Arab Aluminum

0.28

Correlation Coefficient

Misr Chemical  Arab Aluminum

Modest diversification

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

Pair Corralation between Misr Chemical and Arab Aluminum

Assuming the 90 days trading horizon Misr Chemical Industries is expected to under-perform the Arab Aluminum. In addition to that, Misr Chemical is 1.85 times more volatile than Arab Aluminum. It trades about -0.3 of its total potential returns per unit of risk. Arab Aluminum is currently generating about 0.14 per unit of volatility. If you would invest  1,409  in Arab Aluminum on September 16, 2024 and sell it today you would earn a total of  65.00  from holding Arab Aluminum or generate 4.61% return on investment over 90 days.

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

Misr Chemical Industries  vs.  Arab Aluminum

Misr Chemical Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Misr Chemical Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, Misr Chemical is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Arab Aluminum

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Arab Aluminum are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, Arab Aluminum reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Misr Chemical and Arab Aluminum

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

The idea behind Misr Chemical Industries and Arab Aluminum 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.