Correlation Between JB Chemicals and Fairchem Organics

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

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

Diversification Opportunities for JB Chemicals and Fairchem Organics

0.71

Correlation Coefficient

JB Chemicals  Fairchem Organics

Poor diversification

The 3 months correlation between JBCHEPHARM and Fairchem is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding JB Chemicals Pharmaceuticals and Fairchem Organics Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fairchem Organics and JB Chemicals 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 JB Chemicals Pharmaceuticals are associated (or correlated) with Fairchem Organics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fairchem Organics has no effect on the direction of JB Chemicals i.e., JB Chemicals and Fairchem Organics go up and down completely randomly.

Pair Corralation between JB Chemicals and Fairchem Organics

Assuming the 90 days trading horizon JB Chemicals Pharmaceuticals is expected to generate 0.5 times more return on investment than Fairchem Organics. However, JB Chemicals Pharmaceuticals is 2.0 times less risky than Fairchem Organics. It trades about -0.09 of its potential returns per unit of risk. Fairchem Organics Limited is currently generating about -0.1 per unit of risk. If you would invest  186,108  in JB Chemicals Pharmaceuticals on December 30, 2024 and sell it today you would lose (23,788) from holding JB Chemicals Pharmaceuticals or give up 12.78% of portfolio value over 90 days.

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

JB Chemicals Pharmaceuticals  vs.  Fairchem Organics Limited

JB Chemicals Pharmac

Risk-Adjusted Performance

Very Weak

Over the last 90 days JB Chemicals Pharmaceuticals has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

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 unsteady 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.

Pair Trading with JB Chemicals and Fairchem Organics

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

The idea behind JB Chemicals Pharmaceuticals and Fairchem Organics 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.