Correlation Between Pakistan Refinery and Century Insurance

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

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

Diversification Opportunities for Pakistan Refinery and Century Insurance

0.8

Correlation Coefficient

Pakistan Refinery  Century Insurance

Very poor diversification

The 3 months correlation between Pakistan and Century is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Pakistan Refinery and Century Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Century Insurance and Pakistan Refinery 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 Refinery are associated (or correlated) with Century Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Century Insurance has no effect on the direction of Pakistan Refinery i.e., Pakistan Refinery and Century Insurance go up and down completely randomly.

Pair Corralation between Pakistan Refinery and Century Insurance

Assuming the 90 days trading horizon Pakistan Refinery is expected to generate 1.34 times more return on investment than Century Insurance. However, Pakistan Refinery is 1.34 times more volatile than Century Insurance. It trades about 0.22 of its potential returns per unit of risk. Century Insurance is currently generating about 0.24 per unit of risk. If you would invest  2,236  in Pakistan Refinery on September 13, 2024 and sell it today you would earn a total of  1,125  from holding Pakistan Refinery or generate 50.31% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.31%
Values	Daily Returns

Pakistan Refinery  vs.  Century Insurance

Pakistan Refinery

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Pakistan Refinery are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Pakistan Refinery reported solid returns over the last few months and may actually be approaching a breakup point.

Century Insurance

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Century Insurance are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Century Insurance sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Pakistan Refinery and Century Insurance

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

The idea behind Pakistan Refinery and Century Insurance 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.