Correlation Between Pakistan State and Indus

Can any of the company-specific risk be diversified away by investing in both Pakistan State and Indus 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 Indus 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 Indus Motor, you can compare the effects of market volatilities on Pakistan State and Indus 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 Indus. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pakistan State and Indus.

Diversification Opportunities for Pakistan State and Indus

0.95

Correlation Coefficient

Pakistan State  Indus

Almost no diversification

The 3 months correlation between Pakistan and Indus is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Pakistan State Oil and Indus Motor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Indus Motor 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 Indus. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Indus Motor has no effect on the direction of Pakistan State i.e., Pakistan State and Indus go up and down completely randomly.

Pair Corralation between Pakistan State and Indus

Assuming the 90 days trading horizon Pakistan State Oil is expected to generate 2.2 times more return on investment than Indus. However, Pakistan State is 2.2 times more volatile than Indus Motor. It trades about 0.38 of its potential returns per unit of risk. Indus Motor is currently generating about 0.25 per unit of risk. If you would invest  15,581  in Pakistan State Oil on September 4, 2024 and sell it today you would earn a total of  13,675  from holding Pakistan State Oil or generate 87.77% return on investment over 90 days.

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

Pakistan State Oil  vs.  Indus Motor

Pakistan State Oil

Risk-Adjusted Performance

29 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Pakistan State Oil are ranked lower than 29 (%) 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.

Indus Motor

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Indus Motor are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting basic indicators, Indus sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Pakistan State and Indus

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

The idea behind Pakistan State Oil and Indus Motor 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.