Correlation Between Bank Alfalah and Packages

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

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

Diversification Opportunities for Bank Alfalah and Packages

0.84

Correlation Coefficient

Bank Alfalah  Packages

Very poor diversification

The 3 months correlation between Bank and Packages is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Bank Alfalah and Packages in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Packages 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 Packages. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Packages has no effect on the direction of Bank Alfalah i.e., Bank Alfalah and Packages go up and down completely randomly.

Pair Corralation between Bank Alfalah and Packages

Assuming the 90 days trading horizon Bank Alfalah is expected to generate 1.07 times more return on investment than Packages. However, Bank Alfalah is 1.07 times more volatile than Packages. It trades about 0.15 of its potential returns per unit of risk. Packages is currently generating about 0.06 per unit of risk. If you would invest  3,424  in Bank Alfalah on October 8, 2024 and sell it today you would earn a total of  5,260  from holding Bank Alfalah or generate 153.62% return on investment over 90 days.

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

Bank Alfalah  vs.  Packages

Bank Alfalah

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Bank Alfalah are ranked lower than 12 (%) 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.

Packages

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Packages are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Packages sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bank Alfalah and Packages

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

The idea behind Bank Alfalah and Packages 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.