Correlation Between Bank of Punjab and KOT Addu

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

By analyzing existing cross correlation between Bank of Punjab and KOT Addu Power, you can compare the effects of market volatilities on Bank of Punjab and KOT Addu 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 of Punjab with a short position of KOT Addu. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of Punjab and KOT Addu.

Diversification Opportunities for Bank of Punjab and KOT Addu

0.38

Correlation Coefficient

Bank of Punjab  KOT Addu

Weak diversification

The 3 months correlation between Bank and KOT is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Bank of Punjab and KOT Addu Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KOT Addu Power and Bank of Punjab 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 of Punjab are associated (or correlated) with KOT Addu. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KOT Addu Power has no effect on the direction of Bank of Punjab i.e., Bank of Punjab and KOT Addu go up and down completely randomly.

Pair Corralation between Bank of Punjab and KOT Addu

Assuming the 90 days trading horizon Bank of Punjab is expected to generate 3.29 times more return on investment than KOT Addu. However, Bank of Punjab is 3.29 times more volatile than KOT Addu Power. It trades about 0.11 of its potential returns per unit of risk. KOT Addu Power is currently generating about 0.04 per unit of risk. If you would invest  903.00  in Bank of Punjab on December 28, 2024 and sell it today you would earn a total of  179.00  from holding Bank of Punjab or generate 19.82% return on investment over 90 days.

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

Bank of Punjab  vs.  KOT Addu Power

Bank of Punjab

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of Punjab are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Bank of Punjab reported solid returns over the last few months and may actually be approaching a breakup point.

KOT Addu Power

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in KOT Addu Power are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, KOT Addu is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Bank of Punjab and KOT Addu

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

The idea behind Bank of Punjab and KOT Addu Power 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.