Correlation Between Bank Alfalah and International Steels

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Can any of the company-specific risk be diversified away by investing in both Bank Alfalah and International Steels 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 International Steels into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Bank Alfalah and International Steels, you can compare the effects of market volatilities on Bank Alfalah and International Steels 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 International Steels. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank Alfalah and International Steels.

Diversification Opportunities for Bank Alfalah and International Steels

0.75
  Correlation Coefficient

Poor diversification

The 3 months correlation between Bank and International is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Bank Alfalah and International Steels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Steels 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 International Steels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Steels has no effect on the direction of Bank Alfalah i.e., Bank Alfalah and International Steels go up and down completely randomly.

Pair Corralation between Bank Alfalah and International Steels

Assuming the 90 days trading horizon Bank Alfalah is expected to generate 3.39 times less return on investment than International Steels. But when comparing it to its historical volatility, Bank Alfalah is 1.23 times less risky than International Steels. It trades about 0.05 of its potential returns per unit of risk. International Steels is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  8,611  in International Steels on October 24, 2024 and sell it today you would earn a total of  630.00  from holding International Steels or generate 7.32% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Bank Alfalah  vs.  International Steels

 Performance 
       Timeline  
Bank Alfalah 

Risk-Adjusted Performance

11 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Bank Alfalah are ranked lower than 11 (%) 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.
International Steels 

Risk-Adjusted Performance

12 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in International Steels are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Even with relatively conflicting basic indicators, International Steels reported solid returns over the last few months and may actually be approaching a breakup point.

Bank Alfalah and International Steels Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Bank Alfalah and International Steels

The main advantage of trading using opposite Bank Alfalah and International Steels positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank Alfalah position performs unexpectedly, International Steels 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 International Steels will offset losses from the drop in International Steels' long position.
The idea behind Bank Alfalah and International Steels 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.
Check out your portfolio center.
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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.

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