Correlation Between Thirumalai Chemicals and Royal Orchid

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

Diversification Opportunities for Thirumalai Chemicals and Royal Orchid

0.27

Correlation Coefficient

Thirumalai Chemicals  Royal Orchid

Modest diversification

The 3 months correlation between Thirumalai and Royal is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Thirumalai Chemicals Limited and Royal Orchid Hotels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Royal Orchid Hotels 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 Royal Orchid. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Royal Orchid Hotels has no effect on the direction of Thirumalai Chemicals i.e., Thirumalai Chemicals and Royal Orchid go up and down completely randomly.

Pair Corralation between Thirumalai Chemicals and Royal Orchid

Assuming the 90 days trading horizon Thirumalai Chemicals Limited is expected to generate 1.07 times more return on investment than Royal Orchid. However, Thirumalai Chemicals is 1.07 times more volatile than Royal Orchid Hotels. It trades about 0.03 of its potential returns per unit of risk. Royal Orchid Hotels is currently generating about 0.01 per unit of risk. If you would invest  31,185  in Thirumalai Chemicals Limited on October 12, 2024 and sell it today you would earn a total of  1,045  from holding Thirumalai Chemicals Limited or generate 3.35% return on investment over 90 days.

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

Thirumalai Chemicals Limited  vs.  Royal Orchid Hotels

Thirumalai Chemicals

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Thirumalai Chemicals Limited are ranked lower than 2 (%) 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 latest stock price mess, may contribute to short-term losses for the institutional investors.

Royal Orchid Hotels

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Royal Orchid Hotels are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong essential indicators, Royal Orchid is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Thirumalai Chemicals and Royal Orchid

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

The idea behind Thirumalai Chemicals Limited and Royal Orchid Hotels 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.