Correlation Between Allied Bank and Indus

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

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

Diversification Opportunities for Allied Bank and Indus

0.53

Correlation Coefficient

Allied Bank  Indus

Very weak diversification

The 3 months correlation between Allied and Indus is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Allied Bank and Indus Motor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Indus Motor and Allied Bank 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 Allied Bank 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 Allied Bank i.e., Allied Bank and Indus go up and down completely randomly.

Pair Corralation between Allied Bank and Indus

Assuming the 90 days trading horizon Allied Bank is expected to generate 1.37 times more return on investment than Indus. However, Allied Bank is 1.37 times more volatile than Indus Motor. It trades about 0.18 of its potential returns per unit of risk. Indus Motor is currently generating about 0.13 per unit of risk. If you would invest  10,961  in Allied Bank on October 24, 2024 and sell it today you would earn a total of  3,131  from holding Allied Bank or generate 28.56% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.41%
Values	Daily Returns

Allied Bank  vs.  Indus Motor

Allied Bank

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Allied Bank are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Even with relatively conflicting basic indicators, Allied Bank reported solid returns over the last few months and may actually be approaching a breakup point.

Indus Motor

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Indus Motor are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Indus sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Allied Bank and Indus

The main advantage of trading using opposite Allied Bank and Indus positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Allied Bank 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 Allied Bank 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.