Correlation Between Dost Steels and Nestle Pakistan

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

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

Diversification Opportunities for Dost Steels and Nestle Pakistan

-0.16

Correlation Coefficient

Dost Steels  Nestle Pakistan

Good diversification

The 3 months correlation between Dost and Nestle is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Dost Steels and Nestle Pakistan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nestle Pakistan and Dost Steels 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 Dost Steels are associated (or correlated) with Nestle Pakistan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nestle Pakistan has no effect on the direction of Dost Steels i.e., Dost Steels and Nestle Pakistan go up and down completely randomly.

Pair Corralation between Dost Steels and Nestle Pakistan

Assuming the 90 days trading horizon Dost Steels is expected to generate 2.62 times more return on investment than Nestle Pakistan. However, Dost Steels is 2.62 times more volatile than Nestle Pakistan. It trades about 0.06 of its potential returns per unit of risk. Nestle Pakistan is currently generating about 0.02 per unit of risk. If you would invest  628.00  in Dost Steels on December 23, 2024 and sell it today you would earn a total of  46.00  from holding Dost Steels or generate 7.32% return on investment over 90 days.

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

Dost Steels  vs.  Nestle Pakistan

Dost Steels

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Dost Steels are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Dost Steels may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Nestle Pakistan

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Nestle Pakistan are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Nestle Pakistan is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Dost Steels and Nestle Pakistan

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

The idea behind Dost Steels and Nestle Pakistan 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.