Correlation Between Thirumalai Chemicals and Credo Brands

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

By analyzing existing cross correlation between Thirumalai Chemicals Limited and Credo Brands Marketing, you can compare the effects of market volatilities on Thirumalai Chemicals and Credo Brands 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 Thirumalai Chemicals with a short position of Credo Brands. Check out your portfolio center. Please also check ongoing floating volatility patterns of Thirumalai Chemicals and Credo Brands.

Diversification Opportunities for Thirumalai Chemicals and Credo Brands

0.43

Correlation Coefficient

Thirumalai Chemicals  Credo Brands

Very weak diversification

The 3 months correlation between Thirumalai and Credo is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Thirumalai Chemicals Limited and Credo Brands Marketing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Credo Brands Marketing and Thirumalai Chemicals 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 Thirumalai Chemicals Limited are associated (or correlated) with Credo Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Credo Brands Marketing has no effect on the direction of Thirumalai Chemicals i.e., Thirumalai Chemicals and Credo Brands go up and down completely randomly.

Pair Corralation between Thirumalai Chemicals and Credo Brands

Assuming the 90 days trading horizon Thirumalai Chemicals Limited is expected to generate 0.86 times more return on investment than Credo Brands. However, Thirumalai Chemicals Limited is 1.16 times less risky than Credo Brands. It trades about 0.05 of its potential returns per unit of risk. Credo Brands Marketing is currently generating about -0.06 per unit of risk. If you would invest  19,863  in Thirumalai Chemicals Limited on October 4, 2024 and sell it today you would earn a total of  12,217  from holding Thirumalai Chemicals Limited or generate 61.51% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	51.96%
Values	Daily Returns

Thirumalai Chemicals Limited  vs.  Credo Brands Marketing

Thirumalai Chemicals

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Thirumalai Chemicals Limited are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent fundamental indicators, Thirumalai Chemicals is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Credo Brands Marketing

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Credo Brands Marketing has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, Credo Brands is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Thirumalai Chemicals and Credo Brands

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

The idea behind Thirumalai Chemicals Limited and Credo Brands Marketing 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.