Correlation Between Top Union and Prime Oil

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

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

Diversification Opportunities for Top Union and Prime Oil

0.72

Correlation Coefficient

Top Union  Prime Oil

Poor diversification

The 3 months correlation between Top and Prime is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Top Union Electronics and Prime Oil Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prime Oil Chemical and Top Union 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 Top Union Electronics are associated (or correlated) with Prime Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prime Oil Chemical has no effect on the direction of Top Union i.e., Top Union and Prime Oil go up and down completely randomly.

Pair Corralation between Top Union and Prime Oil

Assuming the 90 days trading horizon Top Union Electronics is expected to generate 1.25 times more return on investment than Prime Oil. However, Top Union is 1.25 times more volatile than Prime Oil Chemical. It trades about 0.15 of its potential returns per unit of risk. Prime Oil Chemical is currently generating about 0.1 per unit of risk. If you would invest  3,250  in Top Union Electronics on December 28, 2024 and sell it today you would earn a total of  250.00  from holding Top Union Electronics or generate 7.69% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.21%
Values	Daily Returns

Top Union Electronics  vs.  Prime Oil Chemical

Top Union Electronics

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Top Union Electronics are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Top Union may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Prime Oil Chemical

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Prime Oil Chemical are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Prime Oil is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Top Union and Prime Oil

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

The idea behind Top Union Electronics and Prime Oil Chemical 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.