Correlation Between Fairchem Organics and Mcleod Russel

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

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

Diversification Opportunities for Fairchem Organics and Mcleod Russel

0.06

Correlation Coefficient

Fairchem Organics  Mcleod Russel

Significant diversification

The 3 months correlation between Fairchem and Mcleod is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Fairchem Organics Limited and Mcleod Russel India in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mcleod Russel India and Fairchem Organics 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 Fairchem Organics Limited are associated (or correlated) with Mcleod Russel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mcleod Russel India has no effect on the direction of Fairchem Organics i.e., Fairchem Organics and Mcleod Russel go up and down completely randomly.

Pair Corralation between Fairchem Organics and Mcleod Russel

Assuming the 90 days trading horizon Fairchem Organics Limited is expected to generate 1.63 times more return on investment than Mcleod Russel. However, Fairchem Organics is 1.63 times more volatile than Mcleod Russel India. It trades about 0.28 of its potential returns per unit of risk. Mcleod Russel India is currently generating about 0.08 per unit of risk. If you would invest  83,275  in Fairchem Organics Limited on October 5, 2024 and sell it today you would earn a total of  33,030  from holding Fairchem Organics Limited or generate 39.66% return on investment over 90 days.

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

Fairchem Organics Limited  vs.  Mcleod Russel India

Fairchem Organics

Risk-Adjusted Performance

2 of 100

Very 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.

Mcleod Russel India

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Mcleod Russel India are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Mcleod Russel reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Fairchem Organics and Mcleod Russel

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

The idea behind Fairchem Organics Limited and Mcleod Russel India 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.