Correlation Between Alfalah Consumer and Millat Tractors

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

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

Diversification Opportunities for Alfalah Consumer and Millat Tractors

0.92

Correlation Coefficient

Alfalah Consumer  Millat Tractors

Almost no diversification

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

Pair Corralation between Alfalah Consumer and Millat Tractors

Assuming the 90 days trading horizon Alfalah Consumer is expected to generate 1.55 times more return on investment than Millat Tractors. However, Alfalah Consumer is 1.55 times more volatile than Millat Tractors. It trades about 0.26 of its potential returns per unit of risk. Millat Tractors is currently generating about 0.19 per unit of risk. If you would invest  1,120  in Alfalah Consumer on September 26, 2024 and sell it today you would earn a total of  369.00  from holding Alfalah Consumer or generate 32.95% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	90.7%
Values	Daily Returns

Alfalah Consumer  vs.  Millat Tractors

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.

Millat Tractors

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Millat Tractors are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Millat Tractors reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Alfalah Consumer and Millat Tractors

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

The idea behind Alfalah Consumer and Millat Tractors 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.