Correlation Between Neogen Chemicals and Electrosteel Castings

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

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

Diversification Opportunities for Neogen Chemicals and Electrosteel Castings

0.86

Correlation Coefficient

Neogen Chemicals  Electrosteel Castings

Very poor diversification

The 3 months correlation between Neogen and Electrosteel is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Neogen Chemicals Limited and Electrosteel Castings Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Electrosteel Castings and Neogen 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 Neogen Chemicals Limited are associated (or correlated) with Electrosteel Castings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Electrosteel Castings has no effect on the direction of Neogen Chemicals i.e., Neogen Chemicals and Electrosteel Castings go up and down completely randomly.

Pair Corralation between Neogen Chemicals and Electrosteel Castings

Assuming the 90 days trading horizon Neogen Chemicals Limited is expected to generate 1.25 times more return on investment than Electrosteel Castings. However, Neogen Chemicals is 1.25 times more volatile than Electrosteel Castings Limited. It trades about -0.09 of its potential returns per unit of risk. Electrosteel Castings Limited is currently generating about -0.14 per unit of risk. If you would invest  205,685  in Neogen Chemicals Limited on December 29, 2024 and sell it today you would lose (51,350) from holding Neogen Chemicals Limited or give up 24.97% of portfolio value over 90 days.

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

Neogen Chemicals Limited  vs.  Electrosteel Castings Limited

Neogen Chemicals

Risk-Adjusted Performance

Very Weak

Over the last 90 days Neogen Chemicals Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's technical and fundamental indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Electrosteel Castings

Risk-Adjusted Performance

Very Weak

Over the last 90 days Electrosteel Castings Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Neogen Chemicals and Electrosteel Castings

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

The idea behind Neogen Chemicals Limited and Electrosteel Castings 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.