Correlation Between Egyptian Chemical and Arab Dairy

Can any of the company-specific risk be diversified away by investing in both Egyptian Chemical and Arab Dairy 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 Egyptian Chemical and Arab Dairy into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Egyptian Chemical Industries and The Arab Dairy, you can compare the effects of market volatilities on Egyptian Chemical and Arab Dairy 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 Egyptian Chemical with a short position of Arab Dairy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Egyptian Chemical and Arab Dairy.

Diversification Opportunities for Egyptian Chemical and Arab Dairy

-0.74

Correlation Coefficient

Egyptian Chemical  Arab Dairy

Pay attention - limited upside

The 3 months correlation between Egyptian and Arab is -0.74. Overlapping area represents the amount of risk that can be diversified away by holding Egyptian Chemical Industries and The Arab Dairy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arab Dairy and Egyptian Chemical 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 Egyptian Chemical Industries are associated (or correlated) with Arab Dairy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arab Dairy has no effect on the direction of Egyptian Chemical i.e., Egyptian Chemical and Arab Dairy go up and down completely randomly.

Pair Corralation between Egyptian Chemical and Arab Dairy

Assuming the 90 days trading horizon Egyptian Chemical Industries is expected to under-perform the Arab Dairy. But the stock apears to be less risky and, when comparing its historical volatility, Egyptian Chemical Industries is 2.94 times less risky than Arab Dairy. The stock trades about -0.12 of its potential returns per unit of risk. The The Arab Dairy is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  236.00  in The Arab Dairy on September 17, 2024 and sell it today you would earn a total of  95.00  from holding The Arab Dairy or generate 40.25% return on investment over 90 days.

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

Egyptian Chemical Industries  vs.  The Arab Dairy

Egyptian Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Egyptian Chemical Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Arab Dairy

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in The Arab Dairy are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, Arab Dairy reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Egyptian Chemical and Arab Dairy

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

The idea behind Egyptian Chemical Industries and The Arab Dairy 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.