Correlation Between Air Link and Kohat Cement

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

By analyzing existing cross correlation between Air Link Communication and Kohat Cement, you can compare the effects of market volatilities on Air Link and Kohat Cement 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 Air Link with a short position of Kohat Cement. Check out your portfolio center. Please also check ongoing floating volatility patterns of Air Link and Kohat Cement.

Diversification Opportunities for Air Link and Kohat Cement

-0.28

Correlation Coefficient

Air Link  Kohat Cement

Very good diversification

The 3 months correlation between Air and Kohat is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding Air Link Communication and Kohat Cement in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kohat Cement and Air Link 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 Air Link Communication are associated (or correlated) with Kohat Cement. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kohat Cement has no effect on the direction of Air Link i.e., Air Link and Kohat Cement go up and down completely randomly.

Pair Corralation between Air Link and Kohat Cement

Assuming the 90 days trading horizon Air Link Communication is expected to under-perform the Kohat Cement. But the stock apears to be less risky and, when comparing its historical volatility, Air Link Communication is 1.1 times less risky than Kohat Cement. The stock trades about -0.11 of its potential returns per unit of risk. The Kohat Cement is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  40,260  in Kohat Cement on December 23, 2024 and sell it today you would lose (664.00) from holding Kohat Cement or give up 1.65% of portfolio value over 90 days.

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

Air Link Communication  vs.  Kohat Cement

Air Link Communication

Risk-Adjusted Performance

Very Weak

Over the last 90 days Air Link Communication 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 forward indicators remain quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Kohat Cement

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Air Link and Kohat Cement

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

The idea behind Air Link Communication and Kohat Cement 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.