Correlation Between Air Link and Nestle Pakistan

Can any of the company-specific risk be diversified away by investing in both Air Link and Nestle 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 Air Link and Nestle Pakistan 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 Nestle Pakistan, you can compare the effects of market volatilities on Air Link and Nestle 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 Air Link with a short position of Nestle Pakistan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Air Link and Nestle Pakistan.

Diversification Opportunities for Air Link and Nestle Pakistan

0.75

Correlation Coefficient

Air Link  Nestle Pakistan

Poor diversification

The 3 months correlation between Air and Nestle is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Air Link Communication and Nestle Pakistan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nestle Pakistan 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 Nestle Pakistan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nestle Pakistan has no effect on the direction of Air Link i.e., Air Link and Nestle Pakistan go up and down completely randomly.

Pair Corralation between Air Link and Nestle Pakistan

Assuming the 90 days trading horizon Air Link is expected to generate 1.05 times less return on investment than Nestle Pakistan. In addition to that, Air Link is 2.02 times more volatile than Nestle Pakistan. It trades about 0.04 of its total potential returns per unit of risk. Nestle Pakistan is currently generating about 0.09 per unit of volatility. If you would invest  670,196  in Nestle Pakistan on December 4, 2024 and sell it today you would earn a total of  63,637  from holding Nestle Pakistan or generate 9.5% return on investment over 90 days.

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

Air Link Communication  vs.  Nestle Pakistan

Air Link Communication

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Air Link Communication are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite weak forward indicators, Air Link may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Nestle Pakistan

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nestle Pakistan are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating basic indicators, Nestle Pakistan may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Air Link and Nestle Pakistan

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

The idea behind Air Link Communication and Nestle Pakistan 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.