Correlation Between Crescent Star and Pakistan Petroleum

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

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

Diversification Opportunities for Crescent Star and Pakistan Petroleum

0.23

Correlation Coefficient

Crescent Star  Pakistan Petroleum

Modest diversification

The 3 months correlation between Crescent and Pakistan is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Crescent Star Insurance and Pakistan Petroleum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pakistan Petroleum and Crescent Star 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 Crescent Star Insurance are associated (or correlated) with Pakistan Petroleum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pakistan Petroleum has no effect on the direction of Crescent Star i.e., Crescent Star and Pakistan Petroleum go up and down completely randomly.

Pair Corralation between Crescent Star and Pakistan Petroleum

Assuming the 90 days trading horizon Crescent Star is expected to generate 25.68 times less return on investment than Pakistan Petroleum. In addition to that, Crescent Star is 1.17 times more volatile than Pakistan Petroleum. It trades about 0.01 of its total potential returns per unit of risk. Pakistan Petroleum is currently generating about 0.35 per unit of volatility. If you would invest  11,053  in Pakistan Petroleum on September 14, 2024 and sell it today you would earn a total of  8,940  from holding Pakistan Petroleum or generate 80.88% return on investment over 90 days.

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

Crescent Star Insurance  vs.  Pakistan Petroleum

Crescent Star Insurance

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Crescent Star Insurance has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Crescent Star is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pakistan Petroleum

Risk-Adjusted Performance

27 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Pakistan Petroleum are ranked lower than 27 (%) of all global equities and portfolios over the last 90 days. Even with relatively conflicting basic indicators, Pakistan Petroleum reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Crescent Star and Pakistan Petroleum

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

The idea behind Crescent Star Insurance and Pakistan Petroleum 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.