Correlation Between Damsan JSC and Petrolimex Insurance

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

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

Diversification Opportunities for Damsan JSC and Petrolimex Insurance

0.64

Correlation Coefficient

Damsan JSC  Petrolimex Insurance

Poor diversification

The 3 months correlation between Damsan and Petrolimex is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Damsan JSC and Petrolimex Insurance Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Petrolimex Insurance Corp and Damsan JSC 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 Damsan JSC are associated (or correlated) with Petrolimex Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Petrolimex Insurance Corp has no effect on the direction of Damsan JSC i.e., Damsan JSC and Petrolimex Insurance go up and down completely randomly.

Pair Corralation between Damsan JSC and Petrolimex Insurance

Assuming the 90 days trading horizon Damsan JSC is expected to under-perform the Petrolimex Insurance. But the stock apears to be less risky and, when comparing its historical volatility, Damsan JSC is 1.09 times less risky than Petrolimex Insurance. The stock trades about -0.07 of its potential returns per unit of risk. The Petrolimex Insurance Corp is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  2,375,000  in Petrolimex Insurance Corp on September 14, 2024 and sell it today you would lose (95,000) from holding Petrolimex Insurance Corp or give up 4.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	82.81%
Values	Daily Returns

Damsan JSC  vs.  Petrolimex Insurance Corp

Damsan JSC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Damsan JSC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Petrolimex Insurance Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Petrolimex Insurance Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy forward indicators, Petrolimex Insurance is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Damsan JSC and Petrolimex Insurance

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

The idea behind Damsan JSC and Petrolimex Insurance Corp 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.