Correlation Between Wah Nobel and Sitara Chemical

Can any of the company-specific risk be diversified away by investing in both Wah Nobel and Sitara Chemical 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 Wah Nobel and Sitara Chemical into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for Wah Nobel and Sitara Chemical

0.67

Correlation Coefficient

Wah Nobel  Sitara Chemical

Poor diversification

The 3 months correlation between Wah and Sitara is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Wah Nobel Chemicals and Sitara Chemical Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sitara Chemical Indu and Wah Nobel 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 Wah Nobel Chemicals are associated (or correlated) with Sitara Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sitara Chemical Indu has no effect on the direction of Wah Nobel i.e., Wah Nobel and Sitara Chemical go up and down completely randomly.

Pair Corralation between Wah Nobel and Sitara Chemical

Assuming the 90 days trading horizon Wah Nobel is expected to generate 2.81 times less return on investment than Sitara Chemical. But when comparing it to its historical volatility, Wah Nobel Chemicals is 1.88 times less risky than Sitara Chemical. It trades about 0.15 of its potential returns per unit of risk. Sitara Chemical Industries is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  27,700  in Sitara Chemical Industries on September 12, 2024 and sell it today you would earn a total of  4,203  from holding Sitara Chemical Industries or generate 15.17% return on investment over 90 days.

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

Wah Nobel Chemicals  vs.  Sitara Chemical Industries

Wah Nobel Chemicals

Risk-Adjusted Performance

1 of 100

Insignificant

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

Sitara Chemical Indu

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sitara Chemical Industries are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Sitara Chemical sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Wah Nobel and Sitara Chemical

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

The idea behind Wah Nobel Chemicals and Sitara Chemical Industries 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.