Correlation Between Chemanex PLC and Nations Trust

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

By analyzing existing cross correlation between Chemanex PLC and Nations Trust Bank, you can compare the effects of market volatilities on Chemanex PLC and Nations Trust 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 Chemanex PLC with a short position of Nations Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chemanex PLC and Nations Trust.

Diversification Opportunities for Chemanex PLC and Nations Trust

0.86

Correlation Coefficient

Chemanex PLC  Nations Trust

Very poor diversification

The 3 months correlation between Chemanex and Nations is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Chemanex PLC and Nations Trust Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nations Trust Bank and Chemanex PLC 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 Chemanex PLC are associated (or correlated) with Nations Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nations Trust Bank has no effect on the direction of Chemanex PLC i.e., Chemanex PLC and Nations Trust go up and down completely randomly.

Pair Corralation between Chemanex PLC and Nations Trust

Assuming the 90 days trading horizon Chemanex PLC is expected to generate 2.83 times more return on investment than Nations Trust. However, Chemanex PLC is 2.83 times more volatile than Nations Trust Bank. It trades about 0.57 of its potential returns per unit of risk. Nations Trust Bank is currently generating about 0.39 per unit of risk. If you would invest  9,780  in Chemanex PLC on October 9, 2024 and sell it today you would earn a total of  8,695  from holding Chemanex PLC or generate 88.91% return on investment over 90 days.

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

Chemanex PLC  vs.  Nations Trust Bank

Chemanex PLC

Risk-Adjusted Performance

26 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Chemanex PLC are ranked lower than 26 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Chemanex PLC sustained solid returns over the last few months and may actually be approaching a breakup point.

Nations Trust Bank

Risk-Adjusted Performance

29 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Nations Trust Bank are ranked lower than 29 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Nations Trust sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Chemanex PLC and Nations Trust

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

The idea behind Chemanex PLC and Nations Trust Bank 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.