Correlation Between Arabia Investments and Egyptian Chemical

Can any of the company-specific risk be diversified away by investing in both Arabia Investments and Egyptian Chemical 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 Arabia Investments and Egyptian Chemical into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Arabia Investments Holding and Egyptian Chemical Industries, you can compare the effects of market volatilities on Arabia Investments and Egyptian Chemical 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 Arabia Investments with a short position of Egyptian Chemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Arabia Investments and Egyptian Chemical.

Diversification Opportunities for Arabia Investments and Egyptian Chemical

0.43

Correlation Coefficient

Arabia Investments  Egyptian Chemical

Very weak diversification

The 3 months correlation between Arabia and Egyptian is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Arabia Investments Holding and Egyptian Chemical Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Egyptian Chemical and Arabia Investments 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 Arabia Investments Holding are associated (or correlated) with Egyptian Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Egyptian Chemical has no effect on the direction of Arabia Investments i.e., Arabia Investments and Egyptian Chemical go up and down completely randomly.

Pair Corralation between Arabia Investments and Egyptian Chemical

Assuming the 90 days trading horizon Arabia Investments is expected to generate 1.17 times less return on investment than Egyptian Chemical. In addition to that, Arabia Investments is 1.12 times more volatile than Egyptian Chemical Industries. It trades about 0.04 of its total potential returns per unit of risk. Egyptian Chemical Industries is currently generating about 0.05 per unit of volatility. If you would invest  723.00  in Egyptian Chemical Industries on September 15, 2024 and sell it today you would earn a total of  57.00  from holding Egyptian Chemical Industries or generate 7.88% return on investment over 90 days.

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

Arabia Investments Holding  vs.  Egyptian Chemical Industries

Arabia Investments

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Arabia Investments Holding are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, Arabia Investments is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Egyptian Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Egyptian Chemical Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Arabia Investments and Egyptian Chemical

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

The idea behind Arabia Investments Holding and Egyptian Chemical Industries 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.