Correlation Between Petrochemical and United Parcel
Can any of the company-specific risk be diversified away by investing in both Petrochemical and United Parcel 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 United Parcel into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Petrochemical and United Parcel Service, you can compare the effects of market volatilities on Petrochemical and United Parcel 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 United Parcel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Petrochemical and United Parcel.
Diversification Opportunities for Petrochemical and United Parcel
0.38 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Petrochemical and United is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Petrochemical and United Parcel Service in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Parcel Service 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 United Parcel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Parcel Service has no effect on the direction of Petrochemical i.e., Petrochemical and United Parcel go up and down completely randomly.
Pair Corralation between Petrochemical and United Parcel
Assuming the 90 days trading horizon Petrochemical is expected to generate 1.05 times more return on investment than United Parcel. However, Petrochemical is 1.05 times more volatile than United Parcel Service. It trades about -0.14 of its potential returns per unit of risk. United Parcel Service is currently generating about -0.16 per unit of risk. If you would invest 30,680 in Petrochemical on January 20, 2024 and sell it today you would lose (1,960) from holding Petrochemical or give up 6.39% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 86.36% |
| Values | Daily Returns |
Petrochemical vs. United Parcel Service
Performance |
| Timeline |
| Petrochemical |
| United Parcel Service |
Petrochemical and United Parcel Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Petrochemical and United Parcel
The main advantage of trading using opposite Petrochemical and United Parcel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Petrochemical position performs unexpectedly, United Parcel 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 United Parcel will offset losses from the drop in United Parcel's long position.| Petrochemical vs. Retailors | Petrochemical vs. IDI Insurance | Petrochemical vs. Rapac Communication Infrastructure | Petrochemical vs. Willy Food |
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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.
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