Correlation Between Pak Datacom and Masood Textile

Can any of the company-specific risk be diversified away by investing in both Pak Datacom and Masood Textile 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 Pak Datacom and Masood Textile into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Pak Datacom and Masood Textile Mills, you can compare the effects of market volatilities on Pak Datacom and Masood Textile 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 Pak Datacom with a short position of Masood Textile. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pak Datacom and Masood Textile.

Diversification Opportunities for Pak Datacom and Masood Textile

0.14

Correlation Coefficient

Pak Datacom  Masood Textile

Average diversification

The 3 months correlation between Pak and Masood is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding Pak Datacom and Masood Textile Mills in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Masood Textile Mills and Pak Datacom 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 Pak Datacom are associated (or correlated) with Masood Textile. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Masood Textile Mills has no effect on the direction of Pak Datacom i.e., Pak Datacom and Masood Textile go up and down completely randomly.

Pair Corralation between Pak Datacom and Masood Textile

Assuming the 90 days trading horizon Pak Datacom is expected to generate 0.64 times more return on investment than Masood Textile. However, Pak Datacom is 1.57 times less risky than Masood Textile. It trades about -0.02 of its potential returns per unit of risk. Masood Textile Mills is currently generating about -0.06 per unit of risk. If you would invest  7,819  in Pak Datacom on September 3, 2024 and sell it today you would lose (425.00) from holding Pak Datacom or give up 5.44% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	73.44%
Values	Daily Returns

Pak Datacom  vs.  Masood Textile Mills

Pak Datacom

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pak Datacom has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Pak Datacom is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Masood Textile Mills

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Masood Textile Mills has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting 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.

Pair Trading with Pak Datacom and Masood Textile

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

The idea behind Pak Datacom and Masood Textile Mills 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.