Correlation Between Sapphire Foods and Fairchem Organics

Can any of the company-specific risk be diversified away by investing in both Sapphire Foods and Fairchem Organics 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 Sapphire Foods and Fairchem Organics into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Sapphire Foods India and Fairchem Organics Limited, you can compare the effects of market volatilities on Sapphire Foods and Fairchem Organics 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 Sapphire Foods with a short position of Fairchem Organics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sapphire Foods and Fairchem Organics.

Diversification Opportunities for Sapphire Foods and Fairchem Organics

0.32

Correlation Coefficient

Sapphire Foods  Fairchem Organics

Weak diversification

The 3 months correlation between Sapphire and Fairchem is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Sapphire Foods India and Fairchem Organics Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fairchem Organics and Sapphire Foods 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 Sapphire Foods India are associated (or correlated) with Fairchem Organics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fairchem Organics has no effect on the direction of Sapphire Foods i.e., Sapphire Foods and Fairchem Organics go up and down completely randomly.

Pair Corralation between Sapphire Foods and Fairchem Organics

Assuming the 90 days trading horizon Sapphire Foods India is expected to under-perform the Fairchem Organics. But the stock apears to be less risky and, when comparing its historical volatility, Sapphire Foods India is 2.33 times less risky than Fairchem Organics. The stock trades about -0.04 of its potential returns per unit of risk. The Fairchem Organics Limited is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  109,265  in Fairchem Organics Limited on October 22, 2024 and sell it today you would lose (5,860) from holding Fairchem Organics Limited or give up 5.36% of portfolio value over 90 days.

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

Sapphire Foods India  vs.  Fairchem Organics Limited

Sapphire Foods India

Risk-Adjusted Performance

0 of 100

Very Weak

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

Fairchem Organics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fairchem Organics Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound primary indicators, Fairchem Organics is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Sapphire Foods and Fairchem Organics

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

The idea behind Sapphire Foods India and Fairchem Organics 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.

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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.