Correlation Between AKD Hospitality and Sitara Chemical

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

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

Diversification Opportunities for AKD Hospitality and Sitara Chemical

0.56

Correlation Coefficient

AKD Hospitality  Sitara Chemical

Very weak diversification

The 3 months correlation between AKD and Sitara is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding AKD Hospitality and Sitara Chemical Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sitara Chemical Indu and AKD Hospitality 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 AKD Hospitality are associated (or correlated) with Sitara Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sitara Chemical Indu has no effect on the direction of AKD Hospitality i.e., AKD Hospitality and Sitara Chemical go up and down completely randomly.

Pair Corralation between AKD Hospitality and Sitara Chemical

Assuming the 90 days trading horizon AKD Hospitality is expected to generate 3.44 times less return on investment than Sitara Chemical. But when comparing it to its historical volatility, AKD Hospitality is 1.38 times less risky than Sitara Chemical. It trades about 0.06 of its potential returns per unit of risk. Sitara Chemical Industries is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  28,746  in Sitara Chemical Industries on October 4, 2024 and sell it today you would earn a total of  2,755  from holding Sitara Chemical Industries or generate 9.58% return on investment over 90 days.

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

AKD Hospitality  vs.  Sitara Chemical Industries

AKD Hospitality

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in AKD Hospitality are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite weak fundamental indicators, AKD Hospitality disclosed solid returns over the last few months and may actually be approaching a breakup point.

Sitara Chemical Indu

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Sitara Chemical Industries are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Sitara Chemical sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with AKD Hospitality and Sitara Chemical

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

The idea behind AKD Hospitality and Sitara 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.

Check out your portfolio center.

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.