Correlation Between Pakistan Aluminium and Sardar Chemical

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

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

Diversification Opportunities for Pakistan Aluminium and Sardar Chemical

0.22

Correlation Coefficient

Pakistan Aluminium  Sardar Chemical

Modest diversification

The 3 months correlation between Pakistan and Sardar is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Pakistan Aluminium Beverage and Sardar Chemical Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sardar Chemical Indu and Pakistan Aluminium 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 Pakistan Aluminium Beverage are associated (or correlated) with Sardar Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sardar Chemical Indu has no effect on the direction of Pakistan Aluminium i.e., Pakistan Aluminium and Sardar Chemical go up and down completely randomly.

Pair Corralation between Pakistan Aluminium and Sardar Chemical

Assuming the 90 days trading horizon Pakistan Aluminium Beverage is expected to generate 0.58 times more return on investment than Sardar Chemical. However, Pakistan Aluminium Beverage is 1.73 times less risky than Sardar Chemical. It trades about 0.07 of its potential returns per unit of risk. Sardar Chemical Industries is currently generating about 0.04 per unit of risk. If you would invest  7,761  in Pakistan Aluminium Beverage on September 2, 2024 and sell it today you would earn a total of  664.00  from holding Pakistan Aluminium Beverage or generate 8.56% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	56.92%
Values	Daily Returns

Pakistan Aluminium Beverage  vs.  Sardar Chemical Industries

Pakistan Aluminium

Risk-Adjusted Performance

5 of 100

Modest

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

Sardar Chemical Indu

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sardar Chemical Industries are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Sardar Chemical may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Pakistan Aluminium and Sardar Chemical

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

The idea behind Pakistan Aluminium Beverage and Sardar Chemical Industries 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.