Correlation Between Consolidated Construction and Fairchem Organics

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

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

Diversification Opportunities for Consolidated Construction and Fairchem Organics

0.69

Correlation Coefficient

Consolidated Construction  Fairchem Organics

Poor diversification

The 3 months correlation between Consolidated and Fairchem is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Consolidated Construction Cons and Fairchem Organics Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fairchem Organics and Consolidated Construction 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 Consolidated Construction Consortium 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 Consolidated Construction i.e., Consolidated Construction and Fairchem Organics go up and down completely randomly.

Pair Corralation between Consolidated Construction and Fairchem Organics

Assuming the 90 days trading horizon Consolidated Construction is expected to generate 2.94 times less return on investment than Fairchem Organics. But when comparing it to its historical volatility, Consolidated Construction Consortium is 2.47 times less risky than Fairchem Organics. It trades about 0.26 of its potential returns per unit of risk. Fairchem Organics Limited is currently generating about 0.3 of returns per unit of risk over similar time horizon. If you would invest  81,690  in Fairchem Organics Limited on September 19, 2024 and sell it today you would earn a total of  37,730  from holding Fairchem Organics Limited or generate 46.19% return on investment over 90 days.

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

Consolidated Construction Cons  vs.  Fairchem Organics Limited

Consolidated Construction

Risk-Adjusted Performance

0 of 100

Very Weak

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

Fairchem Organics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fairchem Organics Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound primary indicators, Fairchem Organics is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Consolidated Construction and Fairchem Organics

The main advantage of trading using opposite Consolidated Construction and Fairchem Organics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Consolidated Construction 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 Consolidated Construction Consortium 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.

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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..