Correlation Between Sudarshan Chemical and Linc

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

Diversification Opportunities for Sudarshan Chemical and Linc

-0.2

Correlation Coefficient

Sudarshan Chemical  Linc

Good diversification

The 3 months correlation between Sudarshan and Linc is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Sudarshan Chemical Industries and Linc Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Linc Limited 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 Linc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Linc Limited has no effect on the direction of Sudarshan Chemical i.e., Sudarshan Chemical and Linc go up and down completely randomly.

Pair Corralation between Sudarshan Chemical and Linc

Assuming the 90 days trading horizon Sudarshan Chemical is expected to generate 11.78 times less return on investment than Linc. But when comparing it to its historical volatility, Sudarshan Chemical Industries is 21.14 times less risky than Linc. It trades about 0.1 of its potential returns per unit of risk. Linc Limited is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  17,155  in Linc Limited on October 22, 2024 and sell it today you would lose (2,477) from holding Linc Limited or give up 14.44% of portfolio value over 90 days.

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

Sudarshan Chemical Industries  vs.  Linc Limited

Sudarshan Chemical

Risk-Adjusted Performance

8 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Sudarshan Chemical Industries are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical indicators, Sudarshan Chemical exhibited solid returns over the last few months and may actually be approaching a breakup point.

Linc Limited

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Linc Limited are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Linc unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sudarshan Chemical and Linc

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

The idea behind Sudarshan Chemical Industries and Linc 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.

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.