Correlation Between Century Insurance and Pakistan Tobacco

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

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

Diversification Opportunities for Century Insurance and Pakistan Tobacco

-0.66

Correlation Coefficient

Century Insurance  Pakistan Tobacco

Excellent diversification

The 3 months correlation between Century and Pakistan is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding Century Insurance and Pakistan Tobacco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pakistan Tobacco and Century Insurance 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 Century Insurance 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 Century Insurance i.e., Century Insurance and Pakistan Tobacco go up and down completely randomly.

Pair Corralation between Century Insurance and Pakistan Tobacco

Assuming the 90 days trading horizon Century Insurance is expected to generate 1.45 times more return on investment than Pakistan Tobacco. However, Century Insurance is 1.45 times more volatile than Pakistan Tobacco. It trades about 0.25 of its potential returns per unit of risk. Pakistan Tobacco is currently generating about -0.11 per unit of risk. If you would invest  3,724  in Century Insurance on December 24, 2024 and sell it today you would earn a total of  1,070  from holding Century Insurance or generate 28.73% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	96.77%
Values	Daily Returns

Century Insurance  vs.  Pakistan Tobacco

Century Insurance

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Century Insurance are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Century Insurance 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 latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Century Insurance and Pakistan Tobacco

The main advantage of trading using opposite Century Insurance and Pakistan Tobacco positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Century Insurance 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 Century Insurance 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 Stocks Directory module to find actively traded stocks across global markets.