Correlation Between National Refinery and Ittehad Chemicals

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

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

Diversification Opportunities for National Refinery and Ittehad Chemicals

0.84

Correlation Coefficient

National Refinery  Ittehad Chemicals

Very poor diversification

The 3 months correlation between National and Ittehad is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding National Refinery and Ittehad Chemicals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ittehad Chemicals and National Refinery 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 Refinery are associated (or correlated) with Ittehad Chemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ittehad Chemicals has no effect on the direction of National Refinery i.e., National Refinery and Ittehad Chemicals go up and down completely randomly.

Pair Corralation between National Refinery and Ittehad Chemicals

Assuming the 90 days trading horizon National Refinery is expected to generate 2.07 times less return on investment than Ittehad Chemicals. In addition to that, National Refinery is 1.31 times more volatile than Ittehad Chemicals. It trades about 0.05 of its total potential returns per unit of risk. Ittehad Chemicals is currently generating about 0.13 per unit of volatility. If you would invest  2,293  in Ittehad Chemicals on September 15, 2024 and sell it today you would earn a total of  4,834  from holding Ittehad Chemicals or generate 210.82% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	96.91%
Values	Daily Returns

National Refinery  vs.  Ittehad Chemicals

National Refinery

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in National Refinery are ranked lower than 14 (%) 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.

Ittehad Chemicals

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Ittehad Chemicals are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Ittehad Chemicals reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with National Refinery and Ittehad Chemicals

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

The idea behind National Refinery and Ittehad Chemicals 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 CEOs Directory module to screen CEOs from public companies around the world.