Correlation Between Big Bird and Pakistan Aluminium

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

By analyzing existing cross correlation between Big Bird Foods and Pakistan Aluminium Beverage, you can compare the effects of market volatilities on Big Bird and Pakistan Aluminium 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 Big Bird with a short position of Pakistan Aluminium. Check out your portfolio center. Please also check ongoing floating volatility patterns of Big Bird and Pakistan Aluminium.

Diversification Opportunities for Big Bird and Pakistan Aluminium

0.43

Correlation Coefficient

Big Bird  Pakistan Aluminium

Very weak diversification

The 3 months correlation between Big and Pakistan is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Big Bird Foods and Pakistan Aluminium Beverage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pakistan Aluminium and Big Bird 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 Big Bird Foods are associated (or correlated) with Pakistan Aluminium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pakistan Aluminium has no effect on the direction of Big Bird i.e., Big Bird and Pakistan Aluminium go up and down completely randomly.

Pair Corralation between Big Bird and Pakistan Aluminium

Assuming the 90 days trading horizon Big Bird Foods is expected to under-perform the Pakistan Aluminium. In addition to that, Big Bird is 1.46 times more volatile than Pakistan Aluminium Beverage. It trades about -0.03 of its total potential returns per unit of risk. Pakistan Aluminium Beverage is currently generating about 0.0 per unit of volatility. If you would invest  12,514  in Pakistan Aluminium Beverage on December 30, 2024 and sell it today you would lose (269.00) from holding Pakistan Aluminium Beverage or give up 2.15% of portfolio value over 90 days.

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

Big Bird Foods  vs.  Pakistan Aluminium Beverage

Big Bird Foods

Risk-Adjusted Performance

Very Weak

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

Pakistan Aluminium

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Big Bird and Pakistan Aluminium

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

The idea behind Big Bird Foods and Pakistan Aluminium Beverage 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.