Correlation Between Alfalah Consumer and Sitara Chemical

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

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

Diversification Opportunities for Alfalah Consumer and Sitara Chemical

0.49

Correlation Coefficient

Alfalah Consumer  Sitara Chemical

Very weak diversification

The 3 months correlation between Alfalah and Sitara is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Alfalah Consumer and Sitara Chemical Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sitara Chemical Indu 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 Sitara Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sitara Chemical Indu has no effect on the direction of Alfalah Consumer i.e., Alfalah Consumer and Sitara Chemical go up and down completely randomly.

Pair Corralation between Alfalah Consumer and Sitara Chemical

Assuming the 90 days trading horizon Alfalah Consumer is expected to generate 3.06 times less return on investment than Sitara Chemical. In addition to that, Alfalah Consumer is 1.05 times more volatile than Sitara Chemical Industries. It trades about 0.05 of its total potential returns per unit of risk. Sitara Chemical Industries is currently generating about 0.15 per unit of volatility. If you would invest  29,514  in Sitara Chemical Industries on December 25, 2024 and sell it today you would earn a total of  7,142  from holding Sitara Chemical Industries or generate 24.2% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.31%
Values	Daily Returns

Alfalah Consumer  vs.  Sitara Chemical Industries

Alfalah Consumer

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Alfalah Consumer are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, Alfalah Consumer may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Sitara Chemical Indu

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sitara Chemical Industries are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Sitara Chemical sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Alfalah Consumer and Sitara Chemical

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

The idea behind Alfalah Consumer and Sitara Chemical Industries 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.