Correlation Between TPL Insurance and Ittehad Chemicals

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

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

Diversification Opportunities for TPL Insurance and Ittehad Chemicals

0.84

Correlation Coefficient

TPL Insurance  Ittehad Chemicals

Very poor diversification

The 3 months correlation between TPL and Ittehad is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding TPL Insurance and Ittehad Chemicals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ittehad Chemicals and TPL Insurance 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 TPL Insurance are associated (or correlated) with Ittehad Chemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ittehad Chemicals has no effect on the direction of TPL Insurance i.e., TPL Insurance and Ittehad Chemicals go up and down completely randomly.

Pair Corralation between TPL Insurance and Ittehad Chemicals

Assuming the 90 days trading horizon TPL Insurance is expected to generate 15.25 times less return on investment than Ittehad Chemicals. But when comparing it to its historical volatility, TPL Insurance is 1.19 times less risky than Ittehad Chemicals. It trades about 0.02 of its potential returns per unit of risk. Ittehad Chemicals is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  6,707  in Ittehad Chemicals on October 8, 2024 and sell it today you would earn a total of  1,288  from holding Ittehad Chemicals or generate 19.2% return on investment over 90 days.

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

TPL Insurance  vs.  Ittehad Chemicals

TPL Insurance

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in TPL Insurance are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, TPL Insurance may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Ittehad Chemicals

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Ittehad Chemicals are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Ittehad Chemicals reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with TPL Insurance and Ittehad Chemicals

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

The idea behind TPL Insurance and Ittehad Chemicals 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.