Correlation Between Bodhi Tree and Fairchem Organics

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

By analyzing existing cross correlation between Bodhi Tree Multimedia and Fairchem Organics Limited, you can compare the effects of market volatilities on Bodhi Tree and Fairchem Organics 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 Bodhi Tree with a short position of Fairchem Organics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bodhi Tree and Fairchem Organics.

Diversification Opportunities for Bodhi Tree and Fairchem Organics

0.05

Correlation Coefficient

Bodhi Tree  Fairchem Organics

Significant diversification

The 3 months correlation between Bodhi and Fairchem is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Bodhi Tree Multimedia and Fairchem Organics Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fairchem Organics and Bodhi Tree 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 Bodhi Tree Multimedia are associated (or correlated) with Fairchem Organics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fairchem Organics has no effect on the direction of Bodhi Tree i.e., Bodhi Tree and Fairchem Organics go up and down completely randomly.

Pair Corralation between Bodhi Tree and Fairchem Organics

Assuming the 90 days trading horizon Bodhi Tree Multimedia is expected to under-perform the Fairchem Organics. But the stock apears to be less risky and, when comparing its historical volatility, Bodhi Tree Multimedia is 4.36 times less risky than Fairchem Organics. The stock trades about -0.62 of its potential returns per unit of risk. The Fairchem Organics Limited is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  85,930  in Fairchem Organics Limited on October 8, 2024 and sell it today you would earn a total of  28,745  from holding Fairchem Organics Limited or generate 33.45% return on investment over 90 days.

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

Bodhi Tree Multimedia  vs.  Fairchem Organics Limited

Bodhi Tree Multimedia

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bodhi Tree Multimedia has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Fairchem Organics

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Fairchem Organics Limited are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain primary indicators, Fairchem Organics may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Bodhi Tree and Fairchem Organics

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

The idea behind Bodhi Tree Multimedia and Fairchem Organics Limited 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 Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.