Correlation Between Citrus Leisure and Union Chemicals

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

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

Diversification Opportunities for Citrus Leisure and Union Chemicals

-0.42

Correlation Coefficient

Citrus Leisure  Union Chemicals

Very good diversification

The 3 months correlation between Citrus and Union is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Citrus Leisure PLC and Union Chemicals Lanka in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Union Chemicals Lanka and Citrus Leisure 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 Citrus Leisure PLC are associated (or correlated) with Union Chemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Union Chemicals Lanka has no effect on the direction of Citrus Leisure i.e., Citrus Leisure and Union Chemicals go up and down completely randomly.

Pair Corralation between Citrus Leisure and Union Chemicals

Assuming the 90 days trading horizon Citrus Leisure is expected to generate 68.63 times less return on investment than Union Chemicals. In addition to that, Citrus Leisure is 1.82 times more volatile than Union Chemicals Lanka. It trades about 0.0 of its total potential returns per unit of risk. Union Chemicals Lanka is currently generating about 0.16 per unit of volatility. If you would invest  61,550  in Union Chemicals Lanka on September 19, 2024 and sell it today you would earn a total of  8,825  from holding Union Chemicals Lanka or generate 14.34% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	88.52%
Values	Daily Returns

Citrus Leisure PLC  vs.  Union Chemicals Lanka

Citrus Leisure PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Citrus Leisure PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Citrus Leisure is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Union Chemicals Lanka

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Union Chemicals Lanka are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Union Chemicals sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Citrus Leisure and Union Chemicals

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

The idea behind Citrus Leisure PLC and Union Chemicals Lanka 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.