Correlation Between Neogen Chemicals and Hindcon Chemicals

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

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

Diversification Opportunities for Neogen Chemicals and Hindcon Chemicals

-0.32

Correlation Coefficient

Neogen Chemicals  Hindcon Chemicals

Very good diversification

The 3 months correlation between Neogen and Hindcon is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Neogen Chemicals Limited and Hindcon Chemicals Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hindcon Chemicals and Neogen Chemicals 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 Neogen Chemicals Limited are associated (or correlated) with Hindcon Chemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hindcon Chemicals has no effect on the direction of Neogen Chemicals i.e., Neogen Chemicals and Hindcon Chemicals go up and down completely randomly.

Pair Corralation between Neogen Chemicals and Hindcon Chemicals

Assuming the 90 days trading horizon Neogen Chemicals Limited is expected to generate 0.99 times more return on investment than Hindcon Chemicals. However, Neogen Chemicals Limited is 1.01 times less risky than Hindcon Chemicals. It trades about 0.17 of its potential returns per unit of risk. Hindcon Chemicals Limited is currently generating about 0.01 per unit of risk. If you would invest  148,173  in Neogen Chemicals Limited on September 4, 2024 and sell it today you would earn a total of  66,762  from holding Neogen Chemicals Limited or generate 45.06% return on investment over 90 days.

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

Neogen Chemicals Limited  vs.  Hindcon Chemicals Limited

Neogen Chemicals

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Neogen Chemicals Limited are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain technical and fundamental indicators, Neogen Chemicals sustained solid returns over the last few months and may actually be approaching a breakup point.

Hindcon Chemicals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hindcon Chemicals Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental indicators, Hindcon Chemicals is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Neogen Chemicals and Hindcon Chemicals

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

The idea behind Neogen Chemicals Limited and Hindcon Chemicals 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.