Correlation Between Petrochemical and Homebiogas

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

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

Diversification Opportunities for Petrochemical and Homebiogas

0.39

Correlation Coefficient

Petrochemical  Homebiogas

Weak diversification

The 3 months correlation between Petrochemical and Homebiogas is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Petrochemical and Homebiogas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Homebiogas and Petrochemical 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 Petrochemical are associated (or correlated) with Homebiogas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Homebiogas has no effect on the direction of Petrochemical i.e., Petrochemical and Homebiogas go up and down completely randomly.

Pair Corralation between Petrochemical and Homebiogas

Assuming the 90 days trading horizon Petrochemical is expected to generate 0.92 times more return on investment than Homebiogas. However, Petrochemical is 1.09 times less risky than Homebiogas. It trades about -0.13 of its potential returns per unit of risk. Homebiogas is currently generating about -0.34 per unit of risk. If you would invest  30,290  in Petrochemical on February 4, 2024 and sell it today you would lose (1,800) from holding Petrochemical or give up 5.94% of portfolio value over 90 days.

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

Petrochemical  vs.  Homebiogas

Petrochemical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Petrochemical has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Petrochemical is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Homebiogas

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Homebiogas has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in June 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Petrochemical and Homebiogas

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

The idea behind Petrochemical and Homebiogas 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 Transaction History module to view history of all your transactions and understand their impact on performance.