Correlation Between Century Insurance and Pakistan State

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

Diversification Opportunities for Century Insurance and Pakistan State

0.89

Correlation Coefficient

Century Insurance  Pakistan State

Very poor diversification

The 3 months correlation between Century and Pakistan is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Century Insurance and Pakistan State Oil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pakistan State Oil 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 State. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pakistan State Oil has no effect on the direction of Century Insurance i.e., Century Insurance and Pakistan State go up and down completely randomly.

Pair Corralation between Century Insurance and Pakistan State

Assuming the 90 days trading horizon Century Insurance is expected to generate 2.03 times less return on investment than Pakistan State. But when comparing it to its historical volatility, Century Insurance is 1.2 times less risky than Pakistan State. It trades about 0.18 of its potential returns per unit of risk. Pakistan State Oil is currently generating about 0.3 of returns per unit of risk over similar time horizon. If you would invest  15,655  in Pakistan State Oil on September 27, 2024 and sell it today you would earn a total of  26,253  from holding Pakistan State Oil or generate 167.7% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	94.4%
Values	Daily Returns

Century Insurance  vs.  Pakistan State Oil

Century Insurance

Risk-Adjusted Performance

19 of 100

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 State Oil

Risk-Adjusted Performance

37 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Pakistan State Oil are ranked lower than 37 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Pakistan State reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Century Insurance and Pakistan State

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

The idea behind Century Insurance and Pakistan State Oil 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.