Correlation Between Southern Petrochemicals and United Breweries

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

Diversification Opportunities for Southern Petrochemicals and United Breweries

0.1

Correlation Coefficient

Southern Petrochemicals  United Breweries

Average diversification

The 3 months correlation between Southern and United is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Southern Petrochemicals Indust and United Breweries Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Breweries 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 United Breweries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Breweries has no effect on the direction of Southern Petrochemicals i.e., Southern Petrochemicals and United Breweries go up and down completely randomly.

Pair Corralation between Southern Petrochemicals and United Breweries

Assuming the 90 days trading horizon Southern Petrochemicals Industries is expected to generate 1.38 times more return on investment than United Breweries. However, Southern Petrochemicals is 1.38 times more volatile than United Breweries Limited. It trades about 0.08 of its potential returns per unit of risk. United Breweries Limited is currently generating about -0.05 per unit of risk. If you would invest  7,317  in Southern Petrochemicals Industries on October 22, 2024 and sell it today you would earn a total of  256.00  from holding Southern Petrochemicals Industries or generate 3.5% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.0%
Values	Daily Returns

Southern Petrochemicals Indust  vs.  United Breweries 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 comparatively stable basic indicators, Southern Petrochemicals is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

United Breweries

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in United Breweries Limited are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, United Breweries is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Southern Petrochemicals and United Breweries

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

The idea behind Southern Petrochemicals Industries and United Breweries 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.