Correlation Between Bank of Punjab and Pak Datacom

Can any of the company-specific risk be diversified away by investing in both Bank of Punjab and Pak Datacom 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 Pak Datacom 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 Pak Datacom, you can compare the effects of market volatilities on Bank of Punjab and Pak Datacom 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 Pak Datacom. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of Punjab and Pak Datacom.

Diversification Opportunities for Bank of Punjab and Pak Datacom

0.7

Correlation Coefficient

Bank of Punjab  Pak Datacom

Poor diversification

The 3 months correlation between Bank and Pak is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Bank of Punjab and Pak Datacom in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pak Datacom 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 Pak Datacom. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pak Datacom has no effect on the direction of Bank of Punjab i.e., Bank of Punjab and Pak Datacom go up and down completely randomly.

Pair Corralation between Bank of Punjab and Pak Datacom

Assuming the 90 days trading horizon Bank of Punjab is expected to generate 13.39 times less return on investment than Pak Datacom. But when comparing it to its historical volatility, Bank of Punjab is 1.57 times less risky than Pak Datacom. It trades about 0.06 of its potential returns per unit of risk. Pak Datacom is currently generating about 0.47 of returns per unit of risk over similar time horizon. If you would invest  8,192  in Pak Datacom on October 9, 2024 and sell it today you would earn a total of  5,920  from holding Pak Datacom or generate 72.27% return on investment over 90 days.

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

Bank of Punjab  vs.  Pak Datacom

Bank of Punjab

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of Punjab are ranked lower than 21 (%) 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.

Pak Datacom

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Pak Datacom are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Pak Datacom sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bank of Punjab and Pak Datacom

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

The idea behind Bank of Punjab and Pak Datacom 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.