Correlation Between Softlogic Life and Union Chemicals

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

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

Diversification Opportunities for Softlogic Life and Union Chemicals

0.55

Correlation Coefficient

Softlogic Life  Union Chemicals

Very weak diversification

The 3 months correlation between Softlogic and Union is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Softlogic Life Insurance 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 Softlogic Life 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 Softlogic Life Insurance 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 Softlogic Life i.e., Softlogic Life and Union Chemicals go up and down completely randomly.

Pair Corralation between Softlogic Life and Union Chemicals

Assuming the 90 days trading horizon Softlogic Life Insurance is expected to generate 2.43 times more return on investment than Union Chemicals. However, Softlogic Life is 2.43 times more volatile than Union Chemicals Lanka. It trades about 0.03 of its potential returns per unit of risk. Union Chemicals Lanka is currently generating about 0.06 per unit of risk. If you would invest  7,120  in Softlogic Life Insurance on December 27, 2024 and sell it today you would earn a total of  190.00  from holding Softlogic Life Insurance or generate 2.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	89.47%
Values	Daily Returns

Softlogic Life Insurance  vs.  Union Chemicals Lanka

Softlogic Life Insurance

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Softlogic Life Insurance are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Softlogic Life 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

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Union Chemicals Lanka are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Union Chemicals is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Softlogic Life and Union Chemicals

The main advantage of trading using opposite Softlogic Life and Union Chemicals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Softlogic Life 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 Softlogic Life Insurance 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.

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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.