Correlation Between RENUKA FOODS and Union Chemicals

Can any of the company-specific risk be diversified away by investing in both RENUKA FOODS and Union Chemicals 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 RENUKA FOODS and Union Chemicals into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between RENUKA FOODS PLC and Union Chemicals Lanka, you can compare the effects of market volatilities on RENUKA FOODS and Union Chemicals 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 RENUKA FOODS with a short position of Union Chemicals. Check out your portfolio center. Please also check ongoing floating volatility patterns of RENUKA FOODS and Union Chemicals.

Diversification Opportunities for RENUKA FOODS and Union Chemicals

0.12

Correlation Coefficient

RENUKA FOODS  Union Chemicals

Average diversification

The 3 months correlation between RENUKA and Union is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding RENUKA FOODS PLC and Union Chemicals Lanka in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Union Chemicals Lanka and RENUKA FOODS 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 RENUKA FOODS PLC are associated (or correlated) with Union Chemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Union Chemicals Lanka has no effect on the direction of RENUKA FOODS i.e., RENUKA FOODS and Union Chemicals go up and down completely randomly.

Pair Corralation between RENUKA FOODS and Union Chemicals

Assuming the 90 days trading horizon RENUKA FOODS is expected to generate 4.01 times less return on investment than Union Chemicals. In addition to that, RENUKA FOODS is 2.56 times more volatile than Union Chemicals Lanka. It trades about 0.01 of its total potential returns per unit of risk. Union Chemicals Lanka is currently generating about 0.1 per unit of volatility. If you would invest  70,025  in Union Chemicals Lanka on October 23, 2024 and sell it today you would earn a total of  3,200  from holding Union Chemicals Lanka or generate 4.57% return on investment over 90 days.

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

RENUKA FOODS PLC  vs.  Union Chemicals Lanka

RENUKA FOODS PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days RENUKA FOODS PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, RENUKA FOODS is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Union Chemicals Lanka

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Union Chemicals Lanka are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Union Chemicals is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with RENUKA FOODS and Union Chemicals

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

The idea behind RENUKA FOODS PLC and Union Chemicals Lanka 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..