Correlation Between Atlas Insurance and Pakistan State

Can any of the company-specific risk be diversified away by investing in both Atlas Insurance and Pakistan State 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 Atlas Insurance and Pakistan State into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Atlas Insurance and Pakistan State Oil, you can compare the effects of market volatilities on Atlas Insurance and Pakistan State 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 Atlas Insurance with a short position of Pakistan State. Check out your portfolio center. Please also check ongoing floating volatility patterns of Atlas Insurance and Pakistan State.

Diversification Opportunities for Atlas Insurance and Pakistan State

0.85

Correlation Coefficient

Atlas Insurance  Pakistan State

Very poor diversification

The 3 months correlation between Atlas and Pakistan is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Atlas Insurance and Pakistan State Oil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pakistan State Oil and Atlas Insurance 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 Atlas Insurance are associated (or correlated) with Pakistan State. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pakistan State Oil has no effect on the direction of Atlas Insurance i.e., Atlas Insurance and Pakistan State go up and down completely randomly.

Pair Corralation between Atlas Insurance and Pakistan State

Assuming the 90 days trading horizon Atlas Insurance is expected to under-perform the Pakistan State. But the stock apears to be less risky and, when comparing its historical volatility, Atlas Insurance is 2.59 times less risky than Pakistan State. The stock trades about -0.09 of its potential returns per unit of risk. The Pakistan State Oil is currently generating about 0.32 of returns per unit of risk over similar time horizon. If you would invest  29,867  in Pakistan State Oil on October 11, 2024 and sell it today you would earn a total of  9,352  from holding Pakistan State Oil or generate 31.31% return on investment over 90 days.

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

Atlas Insurance  vs.  Pakistan State Oil

Atlas Insurance

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Atlas Insurance are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Atlas Insurance sustained solid returns over the last few months and may actually be approaching a breakup point.

Pakistan State Oil

Risk-Adjusted Performance

25 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Pakistan State Oil are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. Even with relatively conflicting basic indicators, Pakistan State reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Atlas Insurance and Pakistan State

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

The idea behind Atlas Insurance and Pakistan State Oil 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.