Correlation Between Air Link and Pakistan Tobacco

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

Diversification Opportunities for Air Link and Pakistan Tobacco

-0.39

Correlation Coefficient

Air Link  Pakistan Tobacco

Very good diversification

The 3 months correlation between Air and Pakistan is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Air Link Communication and Pakistan Tobacco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pakistan Tobacco 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 Pakistan Tobacco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pakistan Tobacco has no effect on the direction of Air Link i.e., Air Link and Pakistan Tobacco go up and down completely randomly.

Pair Corralation between Air Link and Pakistan Tobacco

Assuming the 90 days trading horizon Air Link is expected to generate 9.6 times less return on investment than Pakistan Tobacco. But when comparing it to its historical volatility, Air Link Communication is 1.12 times less risky than Pakistan Tobacco. It trades about 0.03 of its potential returns per unit of risk. Pakistan Tobacco is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  81,002  in Pakistan Tobacco on September 4, 2024 and sell it today you would earn a total of  40,494  from holding Pakistan Tobacco or generate 49.99% return on investment over 90 days.

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

Air Link Communication  vs.  Pakistan Tobacco

Air Link Communication

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Air Link Communication are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent forward indicators, Air Link is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pakistan Tobacco

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Pakistan Tobacco are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Pakistan Tobacco sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Air Link and Pakistan Tobacco

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

The idea behind Air Link Communication and Pakistan Tobacco 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 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.