Correlation Between Agro Phos and Generic Engineering

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

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

Diversification Opportunities for Agro Phos and Generic Engineering

0.04

Correlation Coefficient

Agro Phos  Generic Engineering

Significant diversification

The 3 months correlation between Agro and Generic is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Agro Phos India and Generic Engineering Constructi in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Generic Engineering and Agro Phos 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 Agro Phos India are associated (or correlated) with Generic Engineering. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Generic Engineering has no effect on the direction of Agro Phos i.e., Agro Phos and Generic Engineering go up and down completely randomly.

Pair Corralation between Agro Phos and Generic Engineering

Assuming the 90 days trading horizon Agro Phos India is expected to generate 1.06 times more return on investment than Generic Engineering. However, Agro Phos is 1.06 times more volatile than Generic Engineering Construction. It trades about 0.01 of its potential returns per unit of risk. Generic Engineering Construction is currently generating about -0.02 per unit of risk. If you would invest  4,145  in Agro Phos India on October 9, 2024 and sell it today you would lose (107.00) from holding Agro Phos India or give up 2.58% of portfolio value over 90 days.

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

Agro Phos India  vs.  Generic Engineering Constructi

Agro Phos India

Risk-Adjusted Performance

0 of 100

Very Weak

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

Generic Engineering

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Generic Engineering Construction has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental indicators, Generic Engineering is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Agro Phos and Generic Engineering

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

The idea behind Agro Phos India and Generic Engineering Construction 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.