Correlation Between National Bank and Sitara Chemical

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

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

Diversification Opportunities for National Bank and Sitara Chemical

0.7

Correlation Coefficient

National Bank  Sitara Chemical

Poor diversification

The 3 months correlation between National and Sitara is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding National Bank of and Sitara Chemical Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sitara Chemical Indu and National Bank 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 National Bank of are associated (or correlated) with Sitara Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sitara Chemical Indu has no effect on the direction of National Bank i.e., National Bank and Sitara Chemical go up and down completely randomly.

Pair Corralation between National Bank and Sitara Chemical

Assuming the 90 days trading horizon National Bank of is expected to generate 1.2 times more return on investment than Sitara Chemical. However, National Bank is 1.2 times more volatile than Sitara Chemical Industries. It trades about 0.12 of its potential returns per unit of risk. Sitara Chemical Industries is currently generating about -0.02 per unit of risk. If you would invest  3,802  in National Bank of on September 27, 2024 and sell it today you would earn a total of  2,083  from holding National Bank of or generate 54.79% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.2%
Values	Daily Returns

National Bank of  vs.  Sitara Chemical Industries

National Bank

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in National Bank of are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, National Bank is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Sitara Chemical Indu

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sitara Chemical Industries are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Sitara Chemical may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with National Bank and Sitara Chemical

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

The idea behind National Bank of and Sitara Chemical Industries 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.

Check out your portfolio center.

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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.