Correlation Between Bank Alfalah and Habib Bank

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

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

Diversification Opportunities for Bank Alfalah and Habib Bank

0.79

Correlation Coefficient

Bank Alfalah  Habib Bank

Poor diversification

The 3 months correlation between Bank and Habib is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Bank Alfalah and Habib Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Habib Bank 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 Habib Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Habib Bank has no effect on the direction of Bank Alfalah i.e., Bank Alfalah and Habib Bank go up and down completely randomly.

Pair Corralation between Bank Alfalah and Habib Bank

Assuming the 90 days trading horizon Bank Alfalah is expected to generate 1.15 times more return on investment than Habib Bank. However, Bank Alfalah is 1.15 times more volatile than Habib Bank. It trades about -0.04 of its potential returns per unit of risk. Habib Bank is currently generating about -0.13 per unit of risk. If you would invest  8,318  in Bank Alfalah on December 2, 2024 and sell it today you would lose (612.00) from holding Bank Alfalah or give up 7.36% of portfolio value over 90 days.

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

Bank Alfalah  vs.  Habib Bank

Bank Alfalah

Risk-Adjusted Performance

Very Weak

Over the last 90 days Bank Alfalah has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Bank Alfalah is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Habib Bank

Risk-Adjusted Performance

Very Weak

Over the last 90 days Habib Bank has generated negative risk-adjusted returns adding no value to investors with long positions. Even with weak performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in April 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with Bank Alfalah and Habib Bank

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

The idea behind Bank Alfalah and Habib Bank 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.