Correlation Between Petrochemical and Arad Investment

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

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

Diversification Opportunities for Petrochemical and Arad Investment

0.28

Correlation Coefficient

Petrochemical  Arad Investment

Modest diversification

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

Pair Corralation between Petrochemical and Arad Investment

Assuming the 90 days trading horizon Petrochemical is expected to under-perform the Arad Investment. But the stock apears to be less risky and, when comparing its historical volatility, Petrochemical is 2.17 times less risky than Arad Investment. The stock trades about -0.46 of its potential returns per unit of risk. The Arad Investment Industrial is currently generating about 0.68 of returns per unit of risk over similar time horizon. If you would invest  1,064,000  in Arad Investment Industrial on September 17, 2024 and sell it today you would earn a total of  566,000  from holding Arad Investment Industrial or generate 53.2% return on investment over 90 days.

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

Petrochemical  vs.  Arad Investment Industrial

Petrochemical

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Petrochemical are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Petrochemical may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Arad Investment Indu

Risk-Adjusted Performance

39 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Arad Investment Industrial are ranked lower than 39 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Arad Investment sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Petrochemical and Arad Investment

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

The idea behind Petrochemical and Arad Investment Industrial 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.