Correlation Between Amreli Steels and Ghani Chemical

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

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

Diversification Opportunities for Amreli Steels and Ghani Chemical

0.89

Correlation Coefficient

Amreli Steels  Ghani Chemical

Very poor diversification

The 3 months correlation between Amreli and Ghani is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Amreli Steels and Ghani Chemical Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ghani Chemical Industries and Amreli Steels 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 Amreli Steels are associated (or correlated) with Ghani Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ghani Chemical Industries has no effect on the direction of Amreli Steels i.e., Amreli Steels and Ghani Chemical go up and down completely randomly.

Pair Corralation between Amreli Steels and Ghani Chemical

Assuming the 90 days trading horizon Amreli Steels is expected to generate 1.08 times less return on investment than Ghani Chemical. But when comparing it to its historical volatility, Amreli Steels is 1.34 times less risky than Ghani Chemical. It trades about 0.22 of its potential returns per unit of risk. Ghani Chemical Industries is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  1,378  in Ghani Chemical Industries on October 9, 2024 and sell it today you would earn a total of  419.00  from holding Ghani Chemical Industries or generate 30.41% return on investment over 90 days.

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

Amreli Steels  vs.  Ghani Chemical Industries

Amreli Steels

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Amreli Steels are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Amreli Steels sustained solid returns over the last few months and may actually be approaching a breakup point.

Ghani Chemical Industries

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Ghani Chemical Industries are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Ghani Chemical sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Amreli Steels and Ghani Chemical

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

The idea behind Amreli Steels and Ghani 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.