Correlation Between Sitara Chemical and EFU General

Can any of the company-specific risk be diversified away by investing in both Sitara Chemical and EFU General 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 Sitara Chemical and EFU General into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Sitara Chemical Industries and EFU General Insurance, you can compare the effects of market volatilities on Sitara Chemical and EFU General 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 Sitara Chemical with a short position of EFU General. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sitara Chemical and EFU General.

Diversification Opportunities for Sitara Chemical and EFU General

0.7

Correlation Coefficient

Sitara Chemical  EFU General

Poor diversification

The 3 months correlation between Sitara and EFU is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Sitara Chemical Industries and EFU General Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EFU General Insurance and Sitara Chemical 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 Sitara Chemical Industries are associated (or correlated) with EFU General. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EFU General Insurance has no effect on the direction of Sitara Chemical i.e., Sitara Chemical and EFU General go up and down completely randomly.

Pair Corralation between Sitara Chemical and EFU General

Assuming the 90 days trading horizon Sitara Chemical Industries is expected to generate 1.06 times more return on investment than EFU General. However, Sitara Chemical is 1.06 times more volatile than EFU General Insurance. It trades about 0.17 of its potential returns per unit of risk. EFU General Insurance is currently generating about 0.13 per unit of risk. If you would invest  29,578  in Sitara Chemical Industries on December 22, 2024 and sell it today you would earn a total of  7,882  from holding Sitara Chemical Industries or generate 26.65% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	93.55%
Values	Daily Returns

Sitara Chemical Industries  vs.  EFU General Insurance

Sitara Chemical Indu

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sitara Chemical Industries are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting basic indicators, Sitara Chemical sustained solid returns over the last few months and may actually be approaching a breakup point.

EFU General Insurance

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in EFU General Insurance are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, EFU General sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sitara Chemical and EFU General

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

The idea behind Sitara Chemical Industries and EFU General Insurance 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.