Correlation Between SCG Construction and Materials Petroleum

Can any of the company-specific risk be diversified away by investing in both SCG Construction and Materials Petroleum 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 SCG Construction and Materials Petroleum into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between SCG Construction JSC and Materials Petroleum JSC, you can compare the effects of market volatilities on SCG Construction and Materials Petroleum 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 SCG Construction with a short position of Materials Petroleum. Check out your portfolio center. Please also check ongoing floating volatility patterns of SCG Construction and Materials Petroleum.

Diversification Opportunities for SCG Construction and Materials Petroleum

0.2

Correlation Coefficient

SCG Construction  Materials Petroleum

Modest diversification

The 3 months correlation between SCG and Materials is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding SCG Construction JSC and Materials Petroleum JSC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Materials Petroleum JSC and SCG Construction 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 SCG Construction JSC are associated (or correlated) with Materials Petroleum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Materials Petroleum JSC has no effect on the direction of SCG Construction i.e., SCG Construction and Materials Petroleum go up and down completely randomly.

Pair Corralation between SCG Construction and Materials Petroleum

Assuming the 90 days trading horizon SCG Construction JSC is expected to generate 0.12 times more return on investment than Materials Petroleum. However, SCG Construction JSC is 8.09 times less risky than Materials Petroleum. It trades about -0.13 of its potential returns per unit of risk. Materials Petroleum JSC is currently generating about -0.05 per unit of risk. If you would invest  6,550,000  in SCG Construction JSC on September 21, 2024 and sell it today you would lose (50,000) from holding SCG Construction JSC or give up 0.76% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	72.73%
Values	Daily Returns

SCG Construction JSC  vs.  Materials Petroleum JSC

SCG Construction JSC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SCG Construction JSC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, SCG Construction is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Materials Petroleum JSC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Materials Petroleum JSC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's primary indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with SCG Construction and Materials Petroleum

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

The idea behind SCG Construction JSC and Materials Petroleum JSC 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.