Correlation Between Pakistan State and TPL Insurance

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

Diversification Opportunities for Pakistan State and TPL Insurance

-0.41

Correlation Coefficient

Pakistan State  TPL Insurance

Very good diversification

The 3 months correlation between Pakistan and TPL is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Pakistan State Oil and TPL Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TPL Insurance 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 TPL Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TPL Insurance has no effect on the direction of Pakistan State i.e., Pakistan State and TPL Insurance go up and down completely randomly.

Pair Corralation between Pakistan State and TPL Insurance

Assuming the 90 days trading horizon Pakistan State Oil is expected to generate 0.81 times more return on investment than TPL Insurance. However, Pakistan State Oil is 1.23 times less risky than TPL Insurance. It trades about 0.4 of its potential returns per unit of risk. TPL Insurance is currently generating about 0.01 per unit of risk. If you would invest  15,440  in Pakistan State Oil on September 5, 2024 and sell it today you would earn a total of  14,767  from holding Pakistan State Oil or generate 95.64% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	96.88%
Values	Daily Returns

Pakistan State Oil  vs.  TPL Insurance

Pakistan State Oil

Risk-Adjusted Performance

31 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Pakistan State Oil are ranked lower than 31 (%) 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.

TPL Insurance

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days TPL Insurance has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, TPL Insurance 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 TPL Insurance

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

The idea behind Pakistan State Oil and TPL 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.