Correlation Between Fairchem Organics and Sapphire Foods

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

Diversification Opportunities for Fairchem Organics and Sapphire Foods

0.18

Correlation Coefficient

Fairchem Organics  Sapphire Foods

Average diversification

The 3 months correlation between Fairchem and Sapphire is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Fairchem Organics Limited and Sapphire Foods India in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sapphire Foods 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 Sapphire Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sapphire Foods India has no effect on the direction of Fairchem Organics i.e., Fairchem Organics and Sapphire Foods go up and down completely randomly.

Pair Corralation between Fairchem Organics and Sapphire Foods

Assuming the 90 days trading horizon Fairchem Organics Limited is expected to under-perform the Sapphire Foods. In addition to that, Fairchem Organics is 1.5 times more volatile than Sapphire Foods India. It trades about -0.1 of its total potential returns per unit of risk. Sapphire Foods India is currently generating about -0.05 per unit of volatility. If you would invest  33,265  in Sapphire Foods India on December 28, 2024 and sell it today you would lose (3,820) from holding Sapphire Foods India or give up 11.48% of portfolio value over 90 days.

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

Fairchem Organics Limited  vs.  Sapphire Foods India

Fairchem Organics

Risk-Adjusted Performance

Very Weak

Over the last 90 days Fairchem Organics Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's primary indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Sapphire Foods India

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sapphire Foods India has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest weak performance, the Stock's forward indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pair Trading with Fairchem Organics and Sapphire Foods

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

The idea behind Fairchem Organics Limited and Sapphire Foods 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.