Correlation Between Adamjee Insurance and Habib Bank

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

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

Diversification Opportunities for Adamjee Insurance and Habib Bank

0.56

Correlation Coefficient

Adamjee Insurance  Habib Bank

Very weak diversification

The 3 months correlation between Adamjee and Habib is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Adamjee Insurance and Habib Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Habib Bank and Adamjee 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 Adamjee Insurance are associated (or correlated) with Habib Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Habib Bank has no effect on the direction of Adamjee Insurance i.e., Adamjee Insurance and Habib Bank go up and down completely randomly.

Pair Corralation between Adamjee Insurance and Habib Bank

Assuming the 90 days trading horizon Adamjee Insurance is expected to generate 2.33 times less return on investment than Habib Bank. But when comparing it to its historical volatility, Adamjee Insurance is 1.04 times less risky than Habib Bank. It trades about 0.13 of its potential returns per unit of risk. Habib Bank is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest  11,613  in Habib Bank on September 3, 2024 and sell it today you would earn a total of  6,631  from holding Habib Bank or generate 57.1% return on investment over 90 days.

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

Adamjee Insurance  vs.  Habib Bank

Adamjee Insurance

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Adamjee Insurance are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Adamjee Insurance sustained solid returns over the last few months and may actually be approaching a breakup point.

Habib Bank

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Habib Bank are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Habib Bank reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Adamjee Insurance and Habib Bank

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

The idea behind Adamjee Insurance and Habib Bank 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.