Correlation Between Electrosteel Castings and Fairchem Organics

Can any of the company-specific risk be diversified away by investing in both Electrosteel Castings and Fairchem Organics 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 Electrosteel Castings and Fairchem Organics into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Electrosteel Castings Limited and Fairchem Organics Limited, you can compare the effects of market volatilities on Electrosteel Castings and Fairchem Organics 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 Electrosteel Castings with a short position of Fairchem Organics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Electrosteel Castings and Fairchem Organics.

Diversification Opportunities for Electrosteel Castings and Fairchem Organics

0.22

Correlation Coefficient

Electrosteel Castings  Fairchem Organics

Modest diversification

The 3 months correlation between Electrosteel and Fairchem is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Electrosteel Castings Limited and Fairchem Organics Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fairchem Organics and Electrosteel Castings 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 Electrosteel Castings Limited are associated (or correlated) with Fairchem Organics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fairchem Organics has no effect on the direction of Electrosteel Castings i.e., Electrosteel Castings and Fairchem Organics go up and down completely randomly.

Pair Corralation between Electrosteel Castings and Fairchem Organics

Assuming the 90 days trading horizon Electrosteel Castings Limited is expected to under-perform the Fairchem Organics. But the stock apears to be less risky and, when comparing its historical volatility, Electrosteel Castings Limited is 1.81 times less risky than Fairchem Organics. The stock trades about -0.1 of its potential returns per unit of risk. The Fairchem Organics Limited is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  100,185  in Fairchem Organics Limited on October 6, 2024 and sell it today you would earn a total of  14,490  from holding Fairchem Organics Limited or generate 14.46% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	97.62%
Values	Daily Returns

Electrosteel Castings Limited  vs.  Fairchem Organics Limited

Electrosteel Castings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Electrosteel Castings Limited 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 basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Fairchem Organics

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Fairchem Organics Limited are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak primary indicators, Fairchem Organics may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Electrosteel Castings and Fairchem Organics

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

The idea behind Electrosteel Castings Limited and Fairchem Organics Limited 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.