Correlation Between Union Chemicals and Renuka City

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Can any of the company-specific risk be diversified away by investing in both Union Chemicals and Renuka City 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 Union Chemicals and Renuka City into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Union Chemicals Lanka and Renuka City Hotel, you can compare the effects of market volatilities on Union Chemicals and Renuka City 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 Union Chemicals with a short position of Renuka City. Check out your portfolio center. Please also check ongoing floating volatility patterns of Union Chemicals and Renuka City.

Diversification Opportunities for Union Chemicals and Renuka City

0.18
  Correlation Coefficient

Average diversification

The 3 months correlation between Union and Renuka is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Union Chemicals Lanka and Renuka City Hotel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Renuka City Hotel and Union 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 Union Chemicals Lanka are associated (or correlated) with Renuka City. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Renuka City Hotel has no effect on the direction of Union Chemicals i.e., Union Chemicals and Renuka City go up and down completely randomly.

Pair Corralation between Union Chemicals and Renuka City

Assuming the 90 days trading horizon Union Chemicals is expected to generate 12.98 times less return on investment than Renuka City. But when comparing it to its historical volatility, Union Chemicals Lanka is 1.54 times less risky than Renuka City. It trades about 0.03 of its potential returns per unit of risk. Renuka City Hotel is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest  38,000  in Renuka City Hotel on September 19, 2024 and sell it today you would earn a total of  3,425  from holding Renuka City Hotel or generate 9.01% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy95.45%
ValuesDaily Returns

Union Chemicals Lanka  vs.  Renuka City Hotel

 Performance 
       Timeline  
Union Chemicals Lanka 

Risk-Adjusted Performance

12 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Union Chemicals Lanka are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Union Chemicals sustained solid returns over the last few months and may actually be approaching a breakup point.
Renuka City Hotel 

Risk-Adjusted Performance

11 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Renuka City Hotel are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Renuka City sustained solid returns over the last few months and may actually be approaching a breakup point.

Union Chemicals and Renuka City Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Union Chemicals and Renuka City

The main advantage of trading using opposite Union Chemicals and Renuka City positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Union Chemicals position performs unexpectedly, Renuka City 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 Renuka City will offset losses from the drop in Renuka City's long position.
The idea behind Union Chemicals Lanka and Renuka City Hotel 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.

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