Correlation Between Chemcon Speciality and Xchanging Solutions

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

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

Diversification Opportunities for Chemcon Speciality and Xchanging Solutions

0.88

Correlation Coefficient

Chemcon Speciality  Xchanging Solutions

Very poor diversification

The 3 months correlation between Chemcon and Xchanging is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Chemcon Speciality Chemicals and Xchanging Solutions Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xchanging Solutions and Chemcon Speciality 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 Chemcon Speciality Chemicals are associated (or correlated) with Xchanging Solutions. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xchanging Solutions has no effect on the direction of Chemcon Speciality i.e., Chemcon Speciality and Xchanging Solutions go up and down completely randomly.

Pair Corralation between Chemcon Speciality and Xchanging Solutions

Assuming the 90 days trading horizon Chemcon Speciality Chemicals is expected to under-perform the Xchanging Solutions. But the stock apears to be less risky and, when comparing its historical volatility, Chemcon Speciality Chemicals is 1.19 times less risky than Xchanging Solutions. The stock trades about -0.16 of its potential returns per unit of risk. The Xchanging Solutions Limited is currently generating about -0.11 of returns per unit of risk over similar time horizon. If you would invest  11,095  in Xchanging Solutions Limited on December 1, 2024 and sell it today you would lose (2,009) from holding Xchanging Solutions Limited or give up 18.11% of portfolio value over 90 days.

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

Chemcon Speciality Chemicals  vs.  Xchanging Solutions Limited

Chemcon Speciality

Risk-Adjusted Performance

Very Weak

Over the last 90 days Chemcon Speciality Chemicals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's fundamental indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Xchanging Solutions

Risk-Adjusted Performance

Very Weak

Over the last 90 days Xchanging Solutions Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's forward indicators remain fairly strong which may send shares a bit higher in April 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Chemcon Speciality and Xchanging Solutions

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

The idea behind Chemcon Speciality Chemicals and Xchanging Solutions 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.