Correlation Between Engro Fertilizers and Amreli Steels

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

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

Diversification Opportunities for Engro Fertilizers and Amreli Steels

0.44

Correlation Coefficient

Engro Fertilizers  Amreli Steels

Very weak diversification

The 3 months correlation between Engro and Amreli is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Engro Fertilizers and Amreli Steels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amreli Steels and Engro Fertilizers 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 Engro Fertilizers are associated (or correlated) with Amreli Steels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Amreli Steels has no effect on the direction of Engro Fertilizers i.e., Engro Fertilizers and Amreli Steels go up and down completely randomly.

Pair Corralation between Engro Fertilizers and Amreli Steels

Assuming the 90 days trading horizon Engro Fertilizers is expected to generate 0.63 times more return on investment than Amreli Steels. However, Engro Fertilizers is 1.59 times less risky than Amreli Steels. It trades about 0.18 of its potential returns per unit of risk. Amreli Steels is currently generating about 0.04 per unit of risk. If you would invest  5,529  in Engro Fertilizers on October 10, 2024 and sell it today you would earn a total of  16,962  from holding Engro Fertilizers or generate 306.78% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.79%
Values	Daily Returns

Engro Fertilizers  vs.  Amreli Steels

Engro Fertilizers

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Engro Fertilizers are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite quite weak technical and fundamental indicators, Engro Fertilizers disclosed solid returns over the last few months and may actually be approaching a breakup point.

Amreli Steels

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Amreli Steels are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Amreli Steels sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Engro Fertilizers and Amreli Steels

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

The idea behind Engro Fertilizers and Amreli Steels 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..