Correlation Between Faysal Bank and AKD Hospitality

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

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

Diversification Opportunities for Faysal Bank and AKD Hospitality

-0.16

Correlation Coefficient

Faysal Bank  AKD Hospitality

Good diversification

The 3 months correlation between Faysal and AKD is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Faysal Bank and AKD Hospitality in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AKD Hospitality and Faysal Bank 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 Faysal Bank are associated (or correlated) with AKD Hospitality. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AKD Hospitality has no effect on the direction of Faysal Bank i.e., Faysal Bank and AKD Hospitality go up and down completely randomly.

Pair Corralation between Faysal Bank and AKD Hospitality

Assuming the 90 days trading horizon Faysal Bank is expected to generate 1.81 times less return on investment than AKD Hospitality. But when comparing it to its historical volatility, Faysal Bank is 1.2 times less risky than AKD Hospitality. It trades about 0.06 of its potential returns per unit of risk. AKD Hospitality is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  13,862  in AKD Hospitality on September 13, 2024 and sell it today you would earn a total of  2,075  from holding AKD Hospitality or generate 14.97% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	96.83%
Values	Daily Returns

Faysal Bank  vs.  AKD Hospitality

Faysal Bank

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Faysal Bank are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Faysal Bank may actually be approaching a critical reversion point that can send shares even higher in January 2025.

AKD Hospitality

Risk-Adjusted Performance

7 of 100

OK

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

Pair Trading with Faysal Bank and AKD Hospitality

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

The idea behind Faysal Bank and AKD Hospitality 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.