Correlation Between IBL HealthCare and National Refinery

Can any of the company-specific risk be diversified away by investing in both IBL HealthCare and National Refinery 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 IBL HealthCare and National Refinery into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between IBL HealthCare and National Refinery, you can compare the effects of market volatilities on IBL HealthCare and National Refinery 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 IBL HealthCare with a short position of National Refinery. Check out your portfolio center. Please also check ongoing floating volatility patterns of IBL HealthCare and National Refinery.

Diversification Opportunities for IBL HealthCare and National Refinery

0.79

Correlation Coefficient

IBL HealthCare  National Refinery

Poor diversification

The 3 months correlation between IBL and National is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding IBL HealthCare and National Refinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Refinery and IBL HealthCare 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 IBL HealthCare are associated (or correlated) with National Refinery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Refinery has no effect on the direction of IBL HealthCare i.e., IBL HealthCare and National Refinery go up and down completely randomly.

Pair Corralation between IBL HealthCare and National Refinery

Assuming the 90 days trading horizon IBL HealthCare is expected to generate 1.36 times more return on investment than National Refinery. However, IBL HealthCare is 1.36 times more volatile than National Refinery. It trades about 0.17 of its potential returns per unit of risk. National Refinery is currently generating about 0.09 per unit of risk. If you would invest  3,152  in IBL HealthCare on September 4, 2024 and sell it today you would earn a total of  1,276  from holding IBL HealthCare or generate 40.48% return on investment over 90 days.

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

IBL HealthCare  vs.  National Refinery

IBL HealthCare

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in IBL HealthCare are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite quite weak essential indicators, IBL HealthCare disclosed solid returns over the last few months and may actually be approaching a breakup point.

National Refinery

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in National Refinery are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, National Refinery reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IBL HealthCare and National Refinery

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

The idea behind IBL HealthCare and National Refinery 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.