Correlation Between Alkali Metals and Oriental Carbon

Can any of the company-specific risk be diversified away by investing in both Alkali Metals and Oriental Carbon 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 Alkali Metals and Oriental Carbon into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Alkali Metals Limited and Oriental Carbon Chemicals, you can compare the effects of market volatilities on Alkali Metals and Oriental Carbon 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 Alkali Metals with a short position of Oriental Carbon. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alkali Metals and Oriental Carbon.

Diversification Opportunities for Alkali Metals and Oriental Carbon

0.69

Correlation Coefficient

Alkali Metals  Oriental Carbon

Poor diversification

The 3 months correlation between Alkali and Oriental is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Alkali Metals Limited and Oriental Carbon Chemicals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Oriental Carbon Chemicals and Alkali Metals 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 Alkali Metals Limited are associated (or correlated) with Oriental Carbon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Oriental Carbon Chemicals has no effect on the direction of Alkali Metals i.e., Alkali Metals and Oriental Carbon go up and down completely randomly.

Pair Corralation between Alkali Metals and Oriental Carbon

Assuming the 90 days trading horizon Alkali Metals Limited is expected to generate 0.83 times more return on investment than Oriental Carbon. However, Alkali Metals Limited is 1.21 times less risky than Oriental Carbon. It trades about -0.1 of its potential returns per unit of risk. Oriental Carbon Chemicals is currently generating about -0.13 per unit of risk. If you would invest  12,516  in Alkali Metals Limited on October 12, 2024 and sell it today you would lose (1,592) from holding Alkali Metals Limited or give up 12.72% of portfolio value over 90 days.

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

Alkali Metals Limited  vs.  Oriental Carbon Chemicals

Alkali Metals Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Alkali Metals Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Oriental Carbon Chemicals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Oriental Carbon Chemicals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Alkali Metals and Oriental Carbon

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

The idea behind Alkali Metals Limited and Oriental Carbon Chemicals 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.