Correlation Between Big Bird and Pakistan Tobacco

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

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

Diversification Opportunities for Big Bird and Pakistan Tobacco

-0.77

Correlation Coefficient

Big Bird  Pakistan Tobacco

Pay attention - limited upside

The 3 months correlation between Big and Pakistan is -0.77. Overlapping area represents the amount of risk that can be diversified away by holding Big Bird Foods and Pakistan Tobacco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pakistan Tobacco and Big Bird 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 Big Bird Foods are associated (or correlated) with Pakistan Tobacco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pakistan Tobacco has no effect on the direction of Big Bird i.e., Big Bird and Pakistan Tobacco go up and down completely randomly.

Pair Corralation between Big Bird and Pakistan Tobacco

Assuming the 90 days trading horizon Big Bird Foods is expected to under-perform the Pakistan Tobacco. In addition to that, Big Bird is 1.06 times more volatile than Pakistan Tobacco. It trades about -0.14 of its total potential returns per unit of risk. Pakistan Tobacco is currently generating about 0.25 per unit of volatility. If you would invest  88,430  in Pakistan Tobacco on September 14, 2024 and sell it today you would earn a total of  45,324  from holding Pakistan Tobacco or generate 51.25% return on investment over 90 days.

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

Big Bird Foods  vs.  Pakistan Tobacco

Big Bird Foods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Big Bird Foods 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 January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pakistan Tobacco

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Pakistan Tobacco are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Pakistan Tobacco sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Big Bird and Pakistan Tobacco

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

The idea behind Big Bird Foods and Pakistan Tobacco 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.