Correlation Between Retailors and Petrochemical

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

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

Diversification Opportunities for Retailors and Petrochemical

0.35

Correlation Coefficient

Retailors  Petrochemical

Weak diversification

The 3 months correlation between Retailors and Petrochemical is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Retailors and Petrochemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Petrochemical and Retailors 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 Retailors are associated (or correlated) with Petrochemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Petrochemical has no effect on the direction of Retailors i.e., Retailors and Petrochemical go up and down completely randomly.

Pair Corralation between Retailors and Petrochemical

Assuming the 90 days trading horizon Retailors is expected to generate 1.1 times more return on investment than Petrochemical. However, Retailors is 1.1 times more volatile than Petrochemical. It trades about 0.19 of its potential returns per unit of risk. Petrochemical is currently generating about 0.05 per unit of risk. If you would invest  625,500  in Retailors on September 17, 2024 and sell it today you would earn a total of  152,000  from holding Retailors or generate 24.3% return on investment over 90 days.

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

Retailors  vs.  Petrochemical

Retailors

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Retailors are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Retailors sustained solid returns over the last few months and may actually be approaching a breakup point.

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.

Pair Trading with Retailors and Petrochemical

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

The idea behind Retailors and Petrochemical 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.