Correlation Between Thirumalai Chemicals and Muthoot Finance

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

Diversification Opportunities for Thirumalai Chemicals and Muthoot Finance

0.34

Correlation Coefficient

Thirumalai Chemicals  Muthoot Finance

Weak diversification

The 3 months correlation between Thirumalai and Muthoot is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Thirumalai Chemicals Limited and Muthoot Finance Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Muthoot Finance 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 Muthoot Finance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Muthoot Finance has no effect on the direction of Thirumalai Chemicals i.e., Thirumalai Chemicals and Muthoot Finance go up and down completely randomly.

Pair Corralation between Thirumalai Chemicals and Muthoot Finance

Assuming the 90 days trading horizon Thirumalai Chemicals is expected to generate 1.3 times less return on investment than Muthoot Finance. In addition to that, Thirumalai Chemicals is 1.56 times more volatile than Muthoot Finance Limited. It trades about 0.05 of its total potential returns per unit of risk. Muthoot Finance Limited is currently generating about 0.1 per unit of volatility. If you would invest  101,818  in Muthoot Finance Limited on October 9, 2024 and sell it today you would earn a total of  116,762  from holding Muthoot Finance Limited or generate 114.68% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.59%
Values	Daily Returns

Thirumalai Chemicals Limited  vs.  Muthoot Finance Limited

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 newest stock price mess, may contribute to short-term losses for the institutional investors.

Muthoot Finance

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Muthoot Finance Limited are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating technical and fundamental indicators, Muthoot Finance unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Thirumalai Chemicals and Muthoot Finance

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

The idea behind Thirumalai Chemicals Limited and Muthoot Finance 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.