Correlation Between Packages and Pakistan State

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

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

Diversification Opportunities for Packages and Pakistan State

0.76

Correlation Coefficient

Packages  Pakistan State

Poor diversification

The 3 months correlation between Packages and Pakistan is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Packages and Pakistan State Oil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pakistan State Oil and Packages 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 Packages are associated (or correlated) with Pakistan State. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pakistan State Oil has no effect on the direction of Packages i.e., Packages and Pakistan State go up and down completely randomly.

Pair Corralation between Packages and Pakistan State

Assuming the 90 days trading horizon Packages is expected to generate 2.02 times less return on investment than Pakistan State. But when comparing it to its historical volatility, Packages is 1.02 times less risky than Pakistan State. It trades about 0.2 of its potential returns per unit of risk. Pakistan State Oil is currently generating about 0.4 of returns per unit of risk over similar time horizon. If you would invest  15,733  in Pakistan State Oil on September 13, 2024 and sell it today you would earn a total of  15,263  from holding Pakistan State Oil or generate 97.01% return on investment over 90 days.

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

Packages  vs.  Pakistan State Oil

Packages

Risk-Adjusted Performance

15 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Packages are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Packages sustained solid returns over the last few months and may actually be approaching a breakup point.

Pakistan State Oil

Risk-Adjusted Performance

31 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Pakistan State Oil are ranked lower than 31 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Pakistan State reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Packages and Pakistan State

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

The idea behind Packages and Pakistan State Oil 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.