Correlation Between Cairo Oils and Arabia Investments

Can any of the company-specific risk be diversified away by investing in both Cairo Oils and Arabia Investments 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 Cairo Oils and Arabia Investments into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Cairo Oils Soap and Arabia Investments Holding, you can compare the effects of market volatilities on Cairo Oils and Arabia Investments 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 Cairo Oils with a short position of Arabia Investments. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cairo Oils and Arabia Investments.

Diversification Opportunities for Cairo Oils and Arabia Investments

0.24

Correlation Coefficient

Cairo Oils  Arabia Investments

Modest diversification

The 3 months correlation between Cairo and Arabia is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Cairo Oils Soap and Arabia Investments Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arabia Investments and Cairo Oils 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 Cairo Oils Soap are associated (or correlated) with Arabia Investments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arabia Investments has no effect on the direction of Cairo Oils i.e., Cairo Oils and Arabia Investments go up and down completely randomly.

Pair Corralation between Cairo Oils and Arabia Investments

Assuming the 90 days trading horizon Cairo Oils Soap is expected to generate 1.29 times more return on investment than Arabia Investments. However, Cairo Oils is 1.29 times more volatile than Arabia Investments Holding. It trades about 0.14 of its potential returns per unit of risk. Arabia Investments Holding is currently generating about 0.1 per unit of risk. If you would invest  25.00  in Cairo Oils Soap on October 24, 2024 and sell it today you would earn a total of  2.00  from holding Cairo Oils Soap or generate 8.0% return on investment over 90 days.

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

Cairo Oils Soap  vs.  Arabia Investments Holding

Cairo Oils Soap

Risk-Adjusted Performance

9 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cairo Oils Soap are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, Cairo Oils reported solid returns over the last few months and may actually be approaching a breakup point.

Arabia Investments

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Arabia Investments Holding are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, Arabia Investments reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cairo Oils and Arabia Investments

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

The idea behind Cairo Oils Soap and Arabia Investments Holding 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.