Correlation Between Royal Orchid and Thirumalai Chemicals

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

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

Diversification Opportunities for Royal Orchid and Thirumalai Chemicals

0.31

Correlation Coefficient

Royal Orchid  Thirumalai Chemicals

Weak diversification

The 3 months correlation between Royal and Thirumalai is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Royal Orchid Hotels and Thirumalai Chemicals Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Thirumalai Chemicals and Royal Orchid 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 Royal Orchid Hotels are associated (or correlated) with Thirumalai Chemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Thirumalai Chemicals has no effect on the direction of Royal Orchid i.e., Royal Orchid and Thirumalai Chemicals go up and down completely randomly.

Pair Corralation between Royal Orchid and Thirumalai Chemicals

Assuming the 90 days trading horizon Royal Orchid is expected to generate 1.34 times less return on investment than Thirumalai Chemicals. In addition to that, Royal Orchid is 1.11 times more volatile than Thirumalai Chemicals Limited. It trades about 0.03 of its total potential returns per unit of risk. Thirumalai Chemicals Limited is currently generating about 0.05 per unit of volatility. If you would invest  20,851  in Thirumalai Chemicals Limited on September 24, 2024 and sell it today you would earn a total of  12,424  from holding Thirumalai Chemicals Limited or generate 59.58% return on investment over 90 days.

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

Royal Orchid Hotels  vs.  Thirumalai Chemicals Limited

Royal Orchid Hotels

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Royal Orchid Hotels has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong essential indicators, Royal Orchid is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Thirumalai Chemicals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Thirumalai Chemicals Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent fundamental indicators, Thirumalai Chemicals is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Royal Orchid and Thirumalai Chemicals

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

The idea behind Royal Orchid Hotels and Thirumalai Chemicals 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.