Correlation Between Al Baraka and Cairo Oils

Can any of the company-specific risk be diversified away by investing in both Al Baraka and Cairo Oils 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 Al Baraka and Cairo Oils into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Al Baraka Bank and Cairo Oils Soap, you can compare the effects of market volatilities on Al Baraka and Cairo Oils 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 Al Baraka with a short position of Cairo Oils. Check out your portfolio center. Please also check ongoing floating volatility patterns of Al Baraka and Cairo Oils.

Diversification Opportunities for Al Baraka and Cairo Oils

0.55

Correlation Coefficient

Al Baraka  Cairo Oils

Very weak diversification

The 3 months correlation between SAUD and Cairo is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Al Baraka Bank and Cairo Oils Soap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cairo Oils Soap and Al Baraka 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 Al Baraka Bank are associated (or correlated) with Cairo Oils. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cairo Oils Soap has no effect on the direction of Al Baraka i.e., Al Baraka and Cairo Oils go up and down completely randomly.

Pair Corralation between Al Baraka and Cairo Oils

Assuming the 90 days trading horizon Al Baraka Bank is expected to under-perform the Cairo Oils. But the stock apears to be less risky and, when comparing its historical volatility, Al Baraka Bank is 1.31 times less risky than Cairo Oils. The stock trades about -0.23 of its potential returns per unit of risk. The Cairo Oils Soap is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  25.00  in Cairo Oils Soap on October 22, 2024 and sell it today you would earn a total of  0.00  from holding Cairo Oils Soap or generate 0.0% return on investment over 90 days.

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

Al Baraka Bank  vs.  Cairo Oils Soap

Al Baraka Bank

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Al Baraka Bank has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Cairo Oils Soap

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Cairo Oils Soap are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, Cairo Oils reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Al Baraka and Cairo Oils

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

The idea behind Al Baraka Bank and Cairo Oils Soap 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.