Correlation Between Air Link and Pak Gulf

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

Diversification Opportunities for Air Link and Pak Gulf

0.31

Correlation Coefficient

Air Link  Pak Gulf

Weak diversification

The 3 months correlation between Air and Pak is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Air Link Communication and Pak Gulf Leasing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pak Gulf Leasing 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 Pak Gulf. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pak Gulf Leasing has no effect on the direction of Air Link i.e., Air Link and Pak Gulf go up and down completely randomly.

Pair Corralation between Air Link and Pak Gulf

Assuming the 90 days trading horizon Air Link is expected to generate 1.32 times less return on investment than Pak Gulf. But when comparing it to its historical volatility, Air Link Communication is 1.42 times less risky than Pak Gulf. It trades about 0.18 of its potential returns per unit of risk. Pak Gulf Leasing is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  762.00  in Pak Gulf Leasing on September 14, 2024 and sell it today you would earn a total of  418.00  from holding Pak Gulf Leasing or generate 54.86% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	96.83%
Values	Daily Returns

Air Link Communication  vs.  Pak Gulf Leasing

Air Link Communication

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Air Link Communication are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite quite weak forward indicators, Air Link disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pak Gulf Leasing

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Pak Gulf Leasing are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Pak Gulf sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Air Link and Pak Gulf

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

The idea behind Air Link Communication and Pak Gulf Leasing 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.