Correlation Between National Refinery and Lucky Cement

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

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

Diversification Opportunities for National Refinery and Lucky Cement

-0.22

Correlation Coefficient

National Refinery  Lucky Cement

Very good diversification

The 3 months correlation between National and Lucky is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding National Refinery and Lucky Cement in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lucky Cement 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 Lucky Cement. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lucky Cement has no effect on the direction of National Refinery i.e., National Refinery and Lucky Cement go up and down completely randomly.

Pair Corralation between National Refinery and Lucky Cement

Assuming the 90 days trading horizon National Refinery is expected to under-perform the Lucky Cement. In addition to that, National Refinery is 1.25 times more volatile than Lucky Cement. It trades about 0.0 of its total potential returns per unit of risk. Lucky Cement is currently generating about 0.2 per unit of volatility. If you would invest  104,010  in Lucky Cement on December 1, 2024 and sell it today you would earn a total of  38,406  from holding Lucky Cement or generate 36.93% return on investment over 90 days.

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

National Refinery  vs.  Lucky Cement

National Refinery

Risk-Adjusted Performance

Very Weak

Over the last 90 days National Refinery has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, National Refinery is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Lucky Cement

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Lucky Cement are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Lucky Cement sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with National Refinery and Lucky Cement

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

The idea behind National Refinery and Lucky Cement 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.