Correlation Between Allied Bank and K Electric

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

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

Diversification Opportunities for Allied Bank and K Electric

0.05

Correlation Coefficient

Allied Bank  K Electric

Significant diversification

The 3 months correlation between Allied and KEL is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Allied Bank and K Electric in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on K Electric 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 K Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of K Electric has no effect on the direction of Allied Bank i.e., Allied Bank and K Electric go up and down completely randomly.

Pair Corralation between Allied Bank and K Electric

Assuming the 90 days trading horizon Allied Bank is expected to under-perform the K Electric. But the stock apears to be less risky and, when comparing its historical volatility, Allied Bank is 2.02 times less risky than K Electric. The stock trades about -0.09 of its potential returns per unit of risk. The K Electric is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  460.00  in K Electric on December 2, 2024 and sell it today you would lose (15.00) from holding K Electric or give up 3.26% of portfolio value over 90 days.

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

Allied Bank  vs.  K Electric

Allied Bank

Risk-Adjusted Performance

Very Weak

Over the last 90 days Allied Bank has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest weak performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

K Electric

Risk-Adjusted Performance

Very Weak

Over the last 90 days K Electric has generated negative risk-adjusted returns adding no value to investors with long positions. Even with weak performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in April 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with Allied Bank and K Electric

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

The idea behind Allied Bank and K Electric 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.