Correlation Between Artistic Denim and Engro

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

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

Diversification Opportunities for Artistic Denim and Engro

0.74

Correlation Coefficient

Artistic Denim  Engro

Poor diversification

The 3 months correlation between Artistic and Engro is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Artistic Denim Mills and Engro in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Engro and Artistic Denim 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 Artistic Denim Mills 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 Artistic Denim i.e., Artistic Denim and Engro go up and down completely randomly.

Pair Corralation between Artistic Denim and Engro

Assuming the 90 days trading horizon Artistic Denim is expected to generate 3.83 times less return on investment than Engro. But when comparing it to its historical volatility, Artistic Denim Mills is 1.56 times less risky than Engro. It trades about 0.12 of its potential returns per unit of risk. Engro is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest  30,240  in Engro on October 18, 2024 and sell it today you would earn a total of  18,298  from holding Engro or generate 60.51% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	87.3%
Values	Daily Returns

Artistic Denim Mills  vs.  Engro

Artistic Denim Mills

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Artistic Denim Mills are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Artistic Denim sustained solid returns over the last few months and may actually be approaching a breakup point.

Engro

Risk-Adjusted Performance

0 of 100

Solid

Over the last 90 days Engro has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite conflicting technical and fundamental indicators, Engro disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Artistic Denim and Engro

The main advantage of trading using opposite Artistic Denim and Engro positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Artistic Denim 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 Artistic Denim Mills 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.