Correlation Between Bank Alfalah and Gatron Industries

Can any of the company-specific risk be diversified away by investing in both Bank Alfalah and Gatron Industries 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 Bank Alfalah and Gatron Industries into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Bank Alfalah and Gatron Industries, you can compare the effects of market volatilities on Bank Alfalah and Gatron Industries 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 Bank Alfalah with a short position of Gatron Industries. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank Alfalah and Gatron Industries.

Diversification Opportunities for Bank Alfalah and Gatron Industries

-0.51

Correlation Coefficient

Bank Alfalah  Gatron Industries

Excellent diversification

The 3 months correlation between Bank and Gatron is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Bank Alfalah and Gatron Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gatron Industries and Bank Alfalah 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 Bank Alfalah are associated (or correlated) with Gatron Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gatron Industries has no effect on the direction of Bank Alfalah i.e., Bank Alfalah and Gatron Industries go up and down completely randomly.

Pair Corralation between Bank Alfalah and Gatron Industries

Assuming the 90 days trading horizon Bank Alfalah is expected to generate 3.53 times more return on investment than Gatron Industries. However, Bank Alfalah is 3.53 times more volatile than Gatron Industries. It trades about 0.19 of its potential returns per unit of risk. Gatron Industries is currently generating about -0.14 per unit of risk. If you would invest  6,754  in Bank Alfalah on October 9, 2024 and sell it today you would earn a total of  1,860  from holding Bank Alfalah or generate 27.54% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	97.56%
Values	Daily Returns

Bank Alfalah  vs.  Gatron Industries

Bank Alfalah

Risk-Adjusted Performance

13 of 100

Good

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

Gatron Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gatron Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Bank Alfalah and Gatron Industries

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

The idea behind Bank Alfalah and Gatron Industries 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.