Correlation Between Agha Steel and Pakistan State

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

By analyzing existing cross correlation between Agha Steel Industries and Pakistan State Oil, you can compare the effects of market volatilities on Agha Steel and Pakistan State 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 Agha Steel with a short position of Pakistan State. Check out your portfolio center. Please also check ongoing floating volatility patterns of Agha Steel and Pakistan State.

Diversification Opportunities for Agha Steel and Pakistan State

-0.49

Correlation Coefficient

Agha Steel  Pakistan State

Very good diversification

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

Pair Corralation between Agha Steel and Pakistan State

Assuming the 90 days trading horizon Agha Steel is expected to generate 18.51 times less return on investment than Pakistan State. In addition to that, Agha Steel is 1.17 times more volatile than Pakistan State Oil. It trades about 0.01 of its total potential returns per unit of risk. Pakistan State Oil is currently generating about 0.11 per unit of volatility. If you would invest  11,733  in Pakistan State Oil on October 23, 2024 and sell it today you would earn a total of  27,596  from holding Pakistan State Oil or generate 235.2% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Agha Steel Industries  vs.  Pakistan State Oil

Agha Steel Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Agha Steel Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pakistan State Oil

Risk-Adjusted Performance

26 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Pakistan State Oil are ranked lower than 26 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Pakistan State reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Agha Steel and Pakistan State

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

The idea behind Agha Steel Industries and Pakistan State Oil 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 Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.