Correlation Between Embassy Office and Neogen Chemicals

Can any of the company-specific risk be diversified away by investing in both Embassy Office and Neogen Chemicals 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 Embassy Office and Neogen Chemicals into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Embassy Office Parks and Neogen Chemicals Limited, you can compare the effects of market volatilities on Embassy Office and Neogen Chemicals 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 Embassy Office with a short position of Neogen Chemicals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Embassy Office and Neogen Chemicals.

Diversification Opportunities for Embassy Office and Neogen Chemicals

0.16

Correlation Coefficient

Embassy Office  Neogen Chemicals

Average diversification

The 3 months correlation between Embassy and Neogen is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Embassy Office Parks and Neogen Chemicals Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Neogen Chemicals and Embassy Office 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 Embassy Office Parks are associated (or correlated) with Neogen Chemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Neogen Chemicals has no effect on the direction of Embassy Office i.e., Embassy Office and Neogen Chemicals go up and down completely randomly.

Pair Corralation between Embassy Office and Neogen Chemicals

Assuming the 90 days trading horizon Embassy Office Parks is expected to under-perform the Neogen Chemicals. But the stock apears to be less risky and, when comparing its historical volatility, Embassy Office Parks is 3.84 times less risky than Neogen Chemicals. The stock trades about -0.08 of its potential returns per unit of risk. The Neogen Chemicals Limited is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  148,173  in Neogen Chemicals Limited on September 4, 2024 and sell it today you would earn a total of  66,762  from holding Neogen Chemicals Limited or generate 45.06% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	96.83%
Values	Daily Returns

Embassy Office Parks  vs.  Neogen Chemicals Limited

Embassy Office Parks

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Embassy Office Parks has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Embassy Office is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Neogen Chemicals

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Neogen Chemicals Limited are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain technical and fundamental indicators, Neogen Chemicals sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Embassy Office and Neogen Chemicals

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

The idea behind Embassy Office Parks and Neogen Chemicals 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.