Correlation Between Punjab National and HEG

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

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

Diversification Opportunities for Punjab National and HEG

0.55

Correlation Coefficient

Punjab National  HEG

Very weak diversification

The 3 months correlation between Punjab and HEG is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Punjab National Bank and HEG Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HEG Limited and Punjab National 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 Punjab National Bank are associated (or correlated) with HEG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HEG Limited has no effect on the direction of Punjab National i.e., Punjab National and HEG go up and down completely randomly.

Pair Corralation between Punjab National and HEG

Assuming the 90 days trading horizon Punjab National Bank is expected to under-perform the HEG. But the stock apears to be less risky and, when comparing its historical volatility, Punjab National Bank is 1.91 times less risky than HEG. The stock trades about -0.06 of its potential returns per unit of risk. The HEG Limited is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  45,067  in HEG Limited on September 22, 2024 and sell it today you would earn a total of  9,088  from holding HEG Limited or generate 20.17% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.41%
Values	Daily Returns

Punjab National Bank  vs.  HEG Limited

Punjab National Bank

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Punjab National Bank has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

HEG Limited

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in HEG Limited are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, HEG exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Punjab National and HEG

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

The idea behind Punjab National Bank and HEG Limited 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.