Correlation Between South Basic and PV2 Investment

Can any of the company-specific risk be diversified away by investing in both South Basic and PV2 Investment 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 South Basic and PV2 Investment into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between South Basic Chemicals and PV2 Investment JSC, you can compare the effects of market volatilities on South Basic and PV2 Investment 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 South Basic with a short position of PV2 Investment. Check out your portfolio center. Please also check ongoing floating volatility patterns of South Basic and PV2 Investment.

Diversification Opportunities for South Basic and PV2 Investment

0.3

Correlation Coefficient

South Basic  PV2 Investment

Weak diversification

The 3 months correlation between South and PV2 is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding South Basic Chemicals and PV2 Investment JSC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PV2 Investment JSC and South Basic 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 South Basic Chemicals are associated (or correlated) with PV2 Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PV2 Investment JSC has no effect on the direction of South Basic i.e., South Basic and PV2 Investment go up and down completely randomly.

Pair Corralation between South Basic and PV2 Investment

Assuming the 90 days trading horizon South Basic Chemicals is expected to under-perform the PV2 Investment. In addition to that, South Basic is 2.21 times more volatile than PV2 Investment JSC. It trades about -0.05 of its total potential returns per unit of risk. PV2 Investment JSC is currently generating about -0.01 per unit of volatility. If you would invest  320,000  in PV2 Investment JSC on October 6, 2024 and sell it today you would lose (70,000) from holding PV2 Investment JSC or give up 21.87% of portfolio value over 90 days.

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

South Basic Chemicals  vs.  PV2 Investment JSC

South Basic Chemicals

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in South Basic Chemicals are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, South Basic displayed solid returns over the last few months and may actually be approaching a breakup point.

PV2 Investment JSC

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in PV2 Investment JSC are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, PV2 Investment may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with South Basic and PV2 Investment

The main advantage of trading using opposite South Basic and PV2 Investment positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if South Basic position performs unexpectedly, PV2 Investment 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 PV2 Investment will offset losses from the drop in PV2 Investment's long position.

The idea behind South Basic Chemicals and PV2 Investment JSC 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.