Correlation Between Clover Pakistan and Pakistan Hotel

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

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

Diversification Opportunities for Clover Pakistan and Pakistan Hotel

0.71

Correlation Coefficient

Clover Pakistan  Pakistan Hotel

Poor diversification

The 3 months correlation between Clover and Pakistan is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Clover Pakistan and Pakistan Hotel Developers in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pakistan Hotel Developers and Clover Pakistan 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 Clover Pakistan are associated (or correlated) with Pakistan Hotel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pakistan Hotel Developers has no effect on the direction of Clover Pakistan i.e., Clover Pakistan and Pakistan Hotel go up and down completely randomly.

Pair Corralation between Clover Pakistan and Pakistan Hotel

Assuming the 90 days trading horizon Clover Pakistan is expected to generate 1.78 times more return on investment than Pakistan Hotel. However, Clover Pakistan is 1.78 times more volatile than Pakistan Hotel Developers. It trades about 0.09 of its potential returns per unit of risk. Pakistan Hotel Developers is currently generating about -0.29 per unit of risk. If you would invest  5,038  in Clover Pakistan on October 16, 2024 and sell it today you would earn a total of  337.00  from holding Clover Pakistan or generate 6.69% return on investment over 90 days.

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

Clover Pakistan  vs.  Pakistan Hotel Developers

Clover Pakistan

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Clover Pakistan are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Clover Pakistan sustained solid returns over the last few months and may actually be approaching a breakup point.

Pakistan Hotel Developers

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Pakistan Hotel Developers are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Pakistan Hotel sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Clover Pakistan and Pakistan Hotel

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

The idea behind Clover Pakistan and Pakistan Hotel Developers 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.