Correlation Between Adamjee Insurance and Nishat Mills

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

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

Diversification Opportunities for Adamjee Insurance and Nishat Mills

-0.33

Correlation Coefficient

Adamjee Insurance  Nishat Mills

Very good diversification

The 3 months correlation between Adamjee and Nishat is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Adamjee Insurance and Nishat Mills in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nishat Mills and Adamjee Insurance 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 Adamjee Insurance are associated (or correlated) with Nishat Mills. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nishat Mills has no effect on the direction of Adamjee Insurance i.e., Adamjee Insurance and Nishat Mills go up and down completely randomly.

Pair Corralation between Adamjee Insurance and Nishat Mills

Assuming the 90 days trading horizon Adamjee Insurance is expected to under-perform the Nishat Mills. But the stock apears to be less risky and, when comparing its historical volatility, Adamjee Insurance is 1.07 times less risky than Nishat Mills. The stock trades about -0.03 of its potential returns per unit of risk. The Nishat Mills is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  10,098  in Nishat Mills on December 24, 2024 and sell it today you would earn a total of  1,302  from holding Nishat Mills or generate 12.89% return on investment over 90 days.

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

Adamjee Insurance  vs.  Nishat Mills

Adamjee Insurance

Risk-Adjusted Performance

Very Weak

Over the last 90 days Adamjee Insurance has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Adamjee Insurance is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Nishat Mills

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nishat Mills are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Nishat Mills reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Adamjee Insurance and Nishat Mills

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

The idea behind Adamjee Insurance and Nishat Mills 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.

Check out your portfolio center.

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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.