Correlation Between Sitara Chemical and Unity Foods

Can any of the company-specific risk be diversified away by investing in both Sitara Chemical and Unity Foods 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 Unity Foods 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 Unity Foods, you can compare the effects of market volatilities on Sitara Chemical and Unity Foods 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 Unity Foods. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sitara Chemical and Unity Foods.

Diversification Opportunities for Sitara Chemical and Unity Foods

0.71

Correlation Coefficient

Sitara Chemical  Unity Foods

Poor diversification

The 3 months correlation between Sitara and Unity is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Sitara Chemical Industries and Unity Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Unity Foods 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 Unity Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Unity Foods has no effect on the direction of Sitara Chemical i.e., Sitara Chemical and Unity Foods go up and down completely randomly.

Pair Corralation between Sitara Chemical and Unity Foods

Assuming the 90 days trading horizon Sitara Chemical is expected to generate 1.69 times less return on investment than Unity Foods. In addition to that, Sitara Chemical is 1.04 times more volatile than Unity Foods. It trades about 0.08 of its total potential returns per unit of risk. Unity Foods is currently generating about 0.14 per unit of volatility. If you would invest  2,651  in Unity Foods on October 27, 2024 and sell it today you would earn a total of  631.00  from holding Unity Foods or generate 23.8% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.41%
Values	Daily Returns

Sitara Chemical Industries  vs.  Unity Foods

Sitara Chemical Indu

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Sitara Chemical Industries are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Sitara Chemical sustained solid returns over the last few months and may actually be approaching a breakup point.

Unity Foods

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Unity Foods are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward indicators, Unity Foods disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sitara Chemical and Unity Foods

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

The idea behind Sitara Chemical Industries and Unity Foods 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.