Correlation Between Pakistan State and Pakistan Telecommunicatio

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

Diversification Opportunities for Pakistan State and Pakistan Telecommunicatio

0.92

Correlation Coefficient

Pakistan State  Pakistan Telecommunicatio

Almost no diversification

The 3 months correlation between Pakistan and Pakistan is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Pakistan State Oil and Pakistan Telecommunication in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pakistan Telecommunicatio 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 Pakistan Telecommunicatio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pakistan Telecommunicatio has no effect on the direction of Pakistan State i.e., Pakistan State and Pakistan Telecommunicatio go up and down completely randomly.

Pair Corralation between Pakistan State and Pakistan Telecommunicatio

Assuming the 90 days trading horizon Pakistan State is expected to generate 1.1 times less return on investment than Pakistan Telecommunicatio. But when comparing it to its historical volatility, Pakistan State Oil is 1.42 times less risky than Pakistan Telecommunicatio. It trades about 0.42 of its potential returns per unit of risk. Pakistan Telecommunication is currently generating about 0.33 of returns per unit of risk over similar time horizon. If you would invest  1,194  in Pakistan Telecommunication on September 13, 2024 and sell it today you would earn a total of  1,527  from holding Pakistan Telecommunication or generate 127.89% 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.  Pakistan Telecommunication

Pakistan State Oil

Risk-Adjusted Performance

33 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Pakistan State Oil are ranked lower than 33 (%) 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.

Pakistan Telecommunicatio

Risk-Adjusted Performance

25 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Pakistan Telecommunication are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Pakistan Telecommunicatio reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Pakistan State and Pakistan Telecommunicatio

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

The idea behind Pakistan State Oil and Pakistan Telecommunication 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.