Correlation Between Beco Steel and Engro Polymer

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

By analyzing existing cross correlation between Beco Steel and Engro Polymer Chemicals, you can compare the effects of market volatilities on Beco Steel and Engro Polymer 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 Beco Steel with a short position of Engro Polymer. Check out your portfolio center. Please also check ongoing floating volatility patterns of Beco Steel and Engro Polymer.

Diversification Opportunities for Beco Steel and Engro Polymer

0.67

Correlation Coefficient

Beco Steel  Engro Polymer

Poor diversification

The 3 months correlation between Beco and Engro is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Beco Steel and Engro Polymer Chemicals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Engro Polymer Chemicals and Beco Steel 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 Beco Steel are associated (or correlated) with Engro Polymer. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Engro Polymer Chemicals has no effect on the direction of Beco Steel i.e., Beco Steel and Engro Polymer go up and down completely randomly.

Pair Corralation between Beco Steel and Engro Polymer

Assuming the 90 days trading horizon Beco Steel is expected to generate 1.62 times more return on investment than Engro Polymer. However, Beco Steel is 1.62 times more volatile than Engro Polymer Chemicals. It trades about -0.11 of its potential returns per unit of risk. Engro Polymer Chemicals is currently generating about -0.19 per unit of risk. If you would invest  848.00  in Beco Steel on October 11, 2024 and sell it today you would lose (59.00) from holding Beco Steel or give up 6.96% of portfolio value over 90 days.

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

Beco Steel  vs.  Engro Polymer Chemicals

Beco Steel

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Beco Steel are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Beco Steel sustained solid returns over the last few months and may actually be approaching a breakup point.

Engro Polymer Chemicals

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Engro Polymer Chemicals are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting basic indicators, Engro Polymer sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Beco Steel and Engro Polymer

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

The idea behind Beco Steel and Engro Polymer Chemicals 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.