Correlation Between Analyst IMS and Petrochemical

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

By analyzing existing cross correlation between Analyst IMS Investment and Petrochemical, you can compare the effects of market volatilities on Analyst IMS and Petrochemical 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 Analyst IMS with a short position of Petrochemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Analyst IMS and Petrochemical.

Diversification Opportunities for Analyst IMS and Petrochemical

0.66

Correlation Coefficient

Analyst IMS  Petrochemical

Poor diversification

The 3 months correlation between Analyst and Petrochemical is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Analyst IMS Investment and Petrochemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Petrochemical and Analyst IMS 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 Analyst IMS Investment are associated (or correlated) with Petrochemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Petrochemical has no effect on the direction of Analyst IMS i.e., Analyst IMS and Petrochemical go up and down completely randomly.

Pair Corralation between Analyst IMS and Petrochemical

Assuming the 90 days trading horizon Analyst IMS Investment is expected to generate 0.59 times more return on investment than Petrochemical. However, Analyst IMS Investment is 1.7 times less risky than Petrochemical. It trades about 0.33 of its potential returns per unit of risk. Petrochemical is currently generating about 0.04 per unit of risk. If you would invest  382,500  in Analyst IMS Investment on September 5, 2024 and sell it today you would earn a total of  94,400  from holding Analyst IMS Investment or generate 24.68% return on investment over 90 days.

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

Analyst IMS Investment  vs.  Petrochemical

Analyst IMS Investment

Risk-Adjusted Performance

25 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Analyst IMS Investment are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Analyst IMS sustained solid returns over the last few months and may actually be approaching a breakup point.

Petrochemical

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Petrochemical are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Petrochemical is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Analyst IMS and Petrochemical

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

The idea behind Analyst IMS Investment and Petrochemical 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.