Correlation Between Transport and South Basic

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

By analyzing existing cross correlation between Transport and Industry and South Basic Chemicals, you can compare the effects of market volatilities on Transport and South Basic 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 Transport with a short position of South Basic. Check out your portfolio center. Please also check ongoing floating volatility patterns of Transport and South Basic.

Diversification Opportunities for Transport and South Basic

0.77

Correlation Coefficient

Transport  South Basic

Poor diversification

The 3 months correlation between Transport and South is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Transport and Industry and South Basic Chemicals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on South Basic Chemicals and Transport 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 Transport and Industry are associated (or correlated) with South Basic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of South Basic Chemicals has no effect on the direction of Transport i.e., Transport and South Basic go up and down completely randomly.

Pair Corralation between Transport and South Basic

Assuming the 90 days trading horizon Transport and Industry is expected to under-perform the South Basic. In addition to that, Transport is 1.48 times more volatile than South Basic Chemicals. It trades about -0.36 of its total potential returns per unit of risk. South Basic Chemicals is currently generating about -0.13 per unit of volatility. If you would invest  4,610,000  in South Basic Chemicals on December 30, 2024 and sell it today you would lose (595,000) from holding South Basic Chemicals or give up 12.91% of portfolio value over 90 days.

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

Transport and Industry  vs.  South Basic Chemicals

Transport and Industry

Risk-Adjusted Performance

Very Weak

Over the last 90 days Transport and Industry has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's fundamental indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

South Basic Chemicals

Risk-Adjusted Performance

Very Weak

Over the last 90 days South Basic Chemicals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Transport and South Basic

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

The idea behind Transport and Industry and South Basic Chemicals 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.