Correlation Between Engro Polymer and Sitara Chemical

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

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

Diversification Opportunities for Engro Polymer and Sitara Chemical

0.48

Correlation Coefficient

Engro Polymer  Sitara Chemical

Very weak diversification

The 3 months correlation between Engro and Sitara is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Engro Polymer Chemicals and Sitara Chemical Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sitara Chemical Indu and Engro Polymer 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 Engro Polymer Chemicals are associated (or correlated) with Sitara Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sitara Chemical Indu has no effect on the direction of Engro Polymer i.e., Engro Polymer and Sitara Chemical go up and down completely randomly.

Pair Corralation between Engro Polymer and Sitara Chemical

Assuming the 90 days trading horizon Engro Polymer is expected to generate 8.03 times less return on investment than Sitara Chemical. But when comparing it to its historical volatility, Engro Polymer Chemicals is 1.36 times less risky than Sitara Chemical. It trades about 0.02 of its potential returns per unit of risk. Sitara Chemical Industries is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  31,342  in Sitara Chemical Industries on December 30, 2024 and sell it today you would earn a total of  6,063  from holding Sitara Chemical Industries or generate 19.34% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	93.65%
Values	Daily Returns

Engro Polymer Chemicals  vs.  Sitara Chemical Industries

Engro Polymer Chemicals

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Engro Polymer Chemicals are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Engro Polymer is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Sitara Chemical Indu

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sitara Chemical Industries are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Sitara Chemical sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Engro Polymer and Sitara Chemical

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

The idea behind Engro Polymer Chemicals and Sitara 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.

Check out your portfolio center.

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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.