Correlation Between Fairchem Organics and Thomas Scott

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

Diversification Opportunities for Fairchem Organics and Thomas Scott

0.57

Correlation Coefficient

Fairchem Organics  Thomas Scott

Very weak diversification

The 3 months correlation between Fairchem and Thomas is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Fairchem Organics Limited and Thomas Scott Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Thomas Scott Limited 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 Thomas Scott. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Thomas Scott Limited has no effect on the direction of Fairchem Organics i.e., Fairchem Organics and Thomas Scott go up and down completely randomly.

Pair Corralation between Fairchem Organics and Thomas Scott

Assuming the 90 days trading horizon Fairchem Organics is expected to generate 35.24 times less return on investment than Thomas Scott. In addition to that, Fairchem Organics is 1.41 times more volatile than Thomas Scott Limited. It trades about 0.01 of its total potential returns per unit of risk. Thomas Scott Limited is currently generating about 0.26 per unit of volatility. If you would invest  24,531  in Thomas Scott Limited on October 22, 2024 and sell it today you would earn a total of  16,629  from holding Thomas Scott Limited or generate 67.79% return on investment over 90 days.

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

Fairchem Organics Limited  vs.  Thomas Scott Limited

Fairchem Organics

Risk-Adjusted Performance

0 of 100

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 rather sound primary indicators, Fairchem Organics is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Thomas Scott Limited

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Thomas Scott Limited are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Thomas Scott exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Fairchem Organics and Thomas Scott

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

The idea behind Fairchem Organics Limited and Thomas Scott 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.