Correlation Between Thirumalai Chemicals and Prakash Steelage

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

Diversification Opportunities for Thirumalai Chemicals and Prakash Steelage

0.22

Correlation Coefficient

Thirumalai Chemicals  Prakash Steelage

Modest diversification

The 3 months correlation between Thirumalai and Prakash is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Thirumalai Chemicals Limited and Prakash Steelage Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prakash Steelage 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 Prakash Steelage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prakash Steelage has no effect on the direction of Thirumalai Chemicals i.e., Thirumalai Chemicals and Prakash Steelage go up and down completely randomly.

Pair Corralation between Thirumalai Chemicals and Prakash Steelage

Assuming the 90 days trading horizon Thirumalai Chemicals is expected to generate 1.13 times less return on investment than Prakash Steelage. But when comparing it to its historical volatility, Thirumalai Chemicals Limited is 1.32 times less risky than Prakash Steelage. It trades about 0.05 of its potential returns per unit of risk. Prakash Steelage Limited is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  485.00  in Prakash Steelage Limited on October 11, 2024 and sell it today you would earn a total of  307.00  from holding Prakash Steelage Limited or generate 63.3% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.38%
Values	Daily Returns

Thirumalai Chemicals Limited  vs.  Prakash Steelage 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.

Prakash Steelage

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Prakash Steelage Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest conflicting performance, the Stock's basic indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with Thirumalai Chemicals and Prakash Steelage

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

The idea behind Thirumalai Chemicals Limited and Prakash Steelage 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.