Correlation Between Sudarshan Chemical and Delta Manufacturing

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

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

Diversification Opportunities for Sudarshan Chemical and Delta Manufacturing

0.7

Correlation Coefficient

Sudarshan Chemical  Delta Manufacturing

Poor diversification

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

Pair Corralation between Sudarshan Chemical and Delta Manufacturing

Assuming the 90 days trading horizon Sudarshan Chemical Industries is expected to generate 0.44 times more return on investment than Delta Manufacturing. However, Sudarshan Chemical Industries is 2.25 times less risky than Delta Manufacturing. It trades about 0.5 of its potential returns per unit of risk. Delta Manufacturing Limited is currently generating about 0.16 per unit of risk. If you would invest  91,345  in Sudarshan Chemical Industries on September 22, 2024 and sell it today you would earn a total of  21,635  from holding Sudarshan Chemical Industries or generate 23.68% return on investment over 90 days.

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

Sudarshan Chemical Industries  vs.  Delta Manufacturing Limited

Sudarshan Chemical

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sudarshan Chemical Industries are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical indicators, Sudarshan Chemical may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Delta Manufacturing

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Delta Manufacturing Limited are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat fragile technical and fundamental indicators, Delta Manufacturing sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sudarshan Chemical and Delta Manufacturing

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

The idea behind Sudarshan Chemical Industries and Delta Manufacturing 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.