Correlation Between Beco Steel and Pakistan Tobacco

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

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

Diversification Opportunities for Beco Steel and Pakistan Tobacco

-0.33

Correlation Coefficient

Beco Steel  Pakistan Tobacco

Very good diversification

The 3 months correlation between Beco and Pakistan is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Beco Steel and Pakistan Tobacco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pakistan Tobacco 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 Pakistan Tobacco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pakistan Tobacco has no effect on the direction of Beco Steel i.e., Beco Steel and Pakistan Tobacco go up and down completely randomly.

Pair Corralation between Beco Steel and Pakistan Tobacco

Assuming the 90 days trading horizon Beco Steel is expected to generate 2.59 times more return on investment than Pakistan Tobacco. However, Beco Steel is 2.59 times more volatile than Pakistan Tobacco. It trades about 0.07 of its potential returns per unit of risk. Pakistan Tobacco is currently generating about -0.03 per unit of risk. If you would invest  779.00  in Beco Steel on December 30, 2024 and sell it today you would earn a total of  101.00  from holding Beco Steel or generate 12.97% return on investment over 90 days.

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

Beco Steel  vs.  Pakistan Tobacco

Beco Steel

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Beco Steel are ranked lower than 5 (%) 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.

Pakistan Tobacco

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Beco Steel and Pakistan Tobacco

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

The idea behind Beco Steel and Pakistan Tobacco 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.