Correlation Between Artistic Denim and National Refinery

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

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

Diversification Opportunities for Artistic Denim and National Refinery

0.91

Correlation Coefficient

Artistic Denim  National Refinery

Almost no diversification

The 3 months correlation between Artistic and National is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Artistic Denim Mills and National Refinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Refinery and Artistic Denim 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 Artistic Denim Mills are associated (or correlated) with National Refinery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Refinery has no effect on the direction of Artistic Denim i.e., Artistic Denim and National Refinery go up and down completely randomly.

Pair Corralation between Artistic Denim and National Refinery

Assuming the 90 days trading horizon Artistic Denim Mills is expected to under-perform the National Refinery. But the stock apears to be less risky and, when comparing its historical volatility, Artistic Denim Mills is 1.42 times less risky than National Refinery. The stock trades about -0.02 of its potential returns per unit of risk. The National Refinery is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  36,856  in National Refinery on October 3, 2024 and sell it today you would lose (5,912) from holding National Refinery or give up 16.04% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	96.92%
Values	Daily Returns

Artistic Denim Mills  vs.  National Refinery

Artistic Denim Mills

Risk-Adjusted Performance

12 of 100

Good

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

National Refinery

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in National Refinery are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, National Refinery reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Artistic Denim and National Refinery

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

The idea behind Artistic Denim Mills and National Refinery 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..