Correlation Between Agha Steel and Unilever Pakistan

Can any of the company-specific risk be diversified away by investing in both Agha Steel and Unilever Pakistan 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 Unilever Pakistan 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 Unilever Pakistan Foods, you can compare the effects of market volatilities on Agha Steel and Unilever Pakistan 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 Unilever Pakistan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Agha Steel and Unilever Pakistan.

Diversification Opportunities for Agha Steel and Unilever Pakistan

-0.51

Correlation Coefficient

Agha Steel  Unilever Pakistan

Excellent diversification

The 3 months correlation between Agha and Unilever is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Agha Steel Industries and Unilever Pakistan Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Unilever Pakistan Foods 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 Unilever Pakistan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Unilever Pakistan Foods has no effect on the direction of Agha Steel i.e., Agha Steel and Unilever Pakistan go up and down completely randomly.

Pair Corralation between Agha Steel and Unilever Pakistan

Assuming the 90 days trading horizon Agha Steel Industries is expected to under-perform the Unilever Pakistan. In addition to that, Agha Steel is 2.38 times more volatile than Unilever Pakistan Foods. It trades about -0.1 of its total potential returns per unit of risk. Unilever Pakistan Foods is currently generating about 0.22 per unit of volatility. If you would invest  1,850,919  in Unilever Pakistan Foods on October 26, 2024 and sell it today you would earn a total of  318,081  from holding Unilever Pakistan Foods or generate 17.19% 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.  Unilever Pakistan Foods

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 weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Unilever Pakistan Foods

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Unilever Pakistan Foods are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Unilever Pakistan sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Agha Steel and Unilever Pakistan

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

The idea behind Agha Steel Industries and Unilever Pakistan Foods 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.