Correlation Between Alfalah Consumer and Engro

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

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

Diversification Opportunities for Alfalah Consumer and Engro

0.91

Correlation Coefficient

Alfalah Consumer  Engro

Almost no diversification

The 3 months correlation between Alfalah and Engro is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Alfalah Consumer and Engro in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Engro and Alfalah Consumer 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 Alfalah Consumer are associated (or correlated) with Engro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Engro has no effect on the direction of Alfalah Consumer i.e., Alfalah Consumer and Engro go up and down completely randomly.

Pair Corralation between Alfalah Consumer and Engro

Assuming the 90 days trading horizon Alfalah Consumer is expected to generate 1.06 times less return on investment than Engro. But when comparing it to its historical volatility, Alfalah Consumer is 1.1 times less risky than Engro. It trades about 0.26 of its potential returns per unit of risk. Engro is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  30,943  in Engro on September 26, 2024 and sell it today you would earn a total of  11,846  from holding Engro or generate 38.28% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	92.86%
Values	Daily Returns

Alfalah Consumer  vs.  Engro

Alfalah Consumer

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Alfalah Consumer are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, Alfalah Consumer sustained solid returns over the last few months and may actually be approaching a breakup point.

Engro

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Engro are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite quite weak technical and fundamental indicators, Engro disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Alfalah Consumer and Engro

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

The idea behind Alfalah Consumer and Engro 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.