Correlation Between Pakistan State and Gatron Industries

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

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

Diversification Opportunities for Pakistan State and Gatron Industries

-0.8

Correlation Coefficient

Pakistan State  Gatron Industries

Pay attention - limited upside

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

Pair Corralation between Pakistan State and Gatron Industries

Assuming the 90 days trading horizon Pakistan State Oil is expected to generate 2.24 times more return on investment than Gatron Industries. However, Pakistan State is 2.24 times more volatile than Gatron Industries. It trades about 0.39 of its potential returns per unit of risk. Gatron Industries is currently generating about -0.02 per unit of risk. If you would invest  15,499  in Pakistan State Oil on September 12, 2024 and sell it today you would earn a total of  14,368  from holding Pakistan State Oil or generate 92.7% return on investment over 90 days.

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

Pakistan State Oil  vs.  Gatron Industries

Pakistan State Oil

Risk-Adjusted Performance

30 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Pakistan State Oil are ranked lower than 30 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile basic indicators, Pakistan State reported solid returns over the last few months and may actually be approaching a breakup point.

Gatron Industries

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Pakistan State and Gatron Industries

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

The idea behind Pakistan State Oil and Gatron 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.

Check out your portfolio center.

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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.