Correlation Between Aisha Steel and Shadab Textile

Can any of the company-specific risk be diversified away by investing in both Aisha Steel and Shadab Textile 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 Aisha Steel and Shadab Textile into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for Aisha Steel and Shadab Textile

0.72

Correlation Coefficient

Aisha Steel  Shadab Textile

Poor diversification

The 3 months correlation between Aisha and Shadab is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Aisha Steel Mills and Shadab Textile Mills in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shadab Textile Mills and Aisha Steel 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 Aisha Steel Mills are associated (or correlated) with Shadab Textile. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shadab Textile Mills has no effect on the direction of Aisha Steel i.e., Aisha Steel and Shadab Textile go up and down completely randomly.

Pair Corralation between Aisha Steel and Shadab Textile

Assuming the 90 days trading horizon Aisha Steel is expected to generate 1.76 times less return on investment than Shadab Textile. But when comparing it to its historical volatility, Aisha Steel Mills is 1.6 times less risky than Shadab Textile. It trades about 0.05 of its potential returns per unit of risk. Shadab Textile Mills is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  1,241  in Shadab Textile Mills on October 11, 2024 and sell it today you would earn a total of  874.00  from holding Shadab Textile Mills or generate 70.43% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	67.01%
Values	Daily Returns

Aisha Steel Mills  vs.  Shadab Textile Mills

Aisha Steel Mills

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Aisha Steel Mills are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Even with relatively conflicting basic indicators, Aisha Steel reported solid returns over the last few months and may actually be approaching a breakup point.

Shadab Textile Mills

Risk-Adjusted Performance

13 of 100

Good

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

Pair Trading with Aisha Steel and Shadab Textile

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

The idea behind Aisha Steel Mills and Shadab Textile 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.

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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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.