Correlation Between Southern Petrochemicals and Maithan Alloys

Can any of the company-specific risk be diversified away by investing in both Southern Petrochemicals and Maithan Alloys 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 Southern Petrochemicals and Maithan Alloys into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Southern Petrochemicals Industries and Maithan Alloys Limited, you can compare the effects of market volatilities on Southern Petrochemicals and Maithan Alloys 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 Southern Petrochemicals with a short position of Maithan Alloys. Check out your portfolio center. Please also check ongoing floating volatility patterns of Southern Petrochemicals and Maithan Alloys.

Diversification Opportunities for Southern Petrochemicals and Maithan Alloys

0.36

Correlation Coefficient

Southern Petrochemicals  Maithan Alloys

Weak diversification

The 3 months correlation between Southern and Maithan is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Southern Petrochemicals Indust and Maithan Alloys Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Maithan Alloys and Southern Petrochemicals 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 Southern Petrochemicals Industries are associated (or correlated) with Maithan Alloys. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Maithan Alloys has no effect on the direction of Southern Petrochemicals i.e., Southern Petrochemicals and Maithan Alloys go up and down completely randomly.

Pair Corralation between Southern Petrochemicals and Maithan Alloys

Assuming the 90 days trading horizon Southern Petrochemicals is expected to generate 3.74 times less return on investment than Maithan Alloys. But when comparing it to its historical volatility, Southern Petrochemicals Industries is 1.6 times less risky than Maithan Alloys. It trades about 0.08 of its potential returns per unit of risk. Maithan Alloys Limited is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  106,240  in Maithan Alloys Limited on September 23, 2024 and sell it today you would earn a total of  10,920  from holding Maithan Alloys Limited or generate 10.28% return on investment over 90 days.

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

Southern Petrochemicals Indust  vs.  Maithan Alloys Limited

Southern Petrochemicals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Southern Petrochemicals Industries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Maithan Alloys

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Southern Petrochemicals and Maithan Alloys

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

The idea behind Southern Petrochemicals Industries and Maithan Alloys 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.

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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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.