Correlation Between Engro Fertilizers and Habib Sugar

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

By analyzing existing cross correlation between Engro Fertilizers and Habib Sugar Mills, you can compare the effects of market volatilities on Engro Fertilizers and Habib Sugar 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 Habib Sugar. Check out your portfolio center. Please also check ongoing floating volatility patterns of Engro Fertilizers and Habib Sugar.

Diversification Opportunities for Engro Fertilizers and Habib Sugar

0.64

Correlation Coefficient

Engro Fertilizers  Habib Sugar

Poor diversification

The 3 months correlation between Engro and Habib is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Engro Fertilizers and Habib Sugar Mills in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Habib Sugar Mills 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 Habib Sugar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Habib Sugar Mills has no effect on the direction of Engro Fertilizers i.e., Engro Fertilizers and Habib Sugar go up and down completely randomly.

Pair Corralation between Engro Fertilizers and Habib Sugar

Assuming the 90 days trading horizon Engro Fertilizers is expected to generate 1.46 times less return on investment than Habib Sugar. But when comparing it to its historical volatility, Engro Fertilizers is 1.2 times less risky than Habib Sugar. It trades about 0.1 of its potential returns per unit of risk. Habib Sugar Mills is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  6,387  in Habib Sugar Mills on September 30, 2024 and sell it today you would earn a total of  2,039  from holding Habib Sugar Mills or generate 31.92% return on investment over 90 days.

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

Engro Fertilizers  vs.  Habib Sugar Mills

Engro Fertilizers

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Engro Fertilizers are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite weak technical and fundamental indicators, Engro Fertilizers may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Habib Sugar Mills

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Habib Sugar Mills are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite quite weak fundamental drivers, Habib Sugar disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Engro Fertilizers and Habib Sugar

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

The idea behind Engro Fertilizers and Habib Sugar Mills 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.