Correlation Between Thirumalai Chemicals and Zenith Steel

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

Diversification Opportunities for Thirumalai Chemicals and Zenith Steel

0.33

Correlation Coefficient

Thirumalai Chemicals  Zenith Steel

Weak diversification

The 3 months correlation between Thirumalai and Zenith is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Thirumalai Chemicals Limited and Zenith Steel Pipes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zenith Steel Pipes 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 Zenith Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zenith Steel Pipes has no effect on the direction of Thirumalai Chemicals i.e., Thirumalai Chemicals and Zenith Steel go up and down completely randomly.

Pair Corralation between Thirumalai Chemicals and Zenith Steel

Assuming the 90 days trading horizon Thirumalai Chemicals Limited is expected to generate 1.09 times more return on investment than Zenith Steel. However, Thirumalai Chemicals is 1.09 times more volatile than Zenith Steel Pipes. It trades about 0.08 of its potential returns per unit of risk. Zenith Steel Pipes is currently generating about -0.04 per unit of risk. If you would invest  33,430  in Thirumalai Chemicals Limited on September 3, 2024 and sell it today you would earn a total of  4,130  from holding Thirumalai Chemicals Limited or generate 12.35% 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.  Zenith Steel Pipes

Thirumalai Chemicals

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Thirumalai Chemicals Limited are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite quite inconsistent fundamental indicators, Thirumalai Chemicals disclosed solid returns over the last few months and may actually be approaching a breakup point.

Zenith Steel Pipes

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Zenith Steel Pipes has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Zenith Steel is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Thirumalai Chemicals and Zenith Steel

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

The idea behind Thirumalai Chemicals Limited and Zenith Steel Pipes 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 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.