Correlation Between Egyptian Chemical and Misr Chemical

Can any of the company-specific risk be diversified away by investing in both Egyptian Chemical and Misr Chemical 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 Misr Chemical 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 Misr Chemical Industries, you can compare the effects of market volatilities on Egyptian Chemical and Misr Chemical 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 Misr Chemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Egyptian Chemical and Misr Chemical.

Diversification Opportunities for Egyptian Chemical and Misr Chemical

0.64

Correlation Coefficient

Egyptian Chemical  Misr Chemical

Poor diversification

The 3 months correlation between Egyptian and Misr is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Egyptian Chemical Industries and Misr Chemical Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Misr Chemical Industries 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 Misr Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Misr Chemical Industries has no effect on the direction of Egyptian Chemical i.e., Egyptian Chemical and Misr Chemical go up and down completely randomly.

Pair Corralation between Egyptian Chemical and Misr Chemical

Assuming the 90 days trading horizon Egyptian Chemical is expected to generate 2.26 times less return on investment than Misr Chemical. But when comparing it to its historical volatility, Egyptian Chemical Industries is 1.1 times less risky than Misr Chemical. It trades about 0.02 of its potential returns per unit of risk. Misr Chemical Industries is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  2,331  in Misr Chemical Industries on October 7, 2024 and sell it today you would earn a total of  391.00  from holding Misr Chemical Industries or generate 16.77% return on investment over 90 days.

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

Egyptian Chemical Industries  vs.  Misr Chemical Industries

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 fragile performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Misr Chemical Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Misr Chemical Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Egyptian Chemical and Misr Chemical

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

The idea behind Egyptian Chemical Industries and Misr Chemical Industries 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.