Correlation Between Engro Fertilizers and National Bank

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

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

Diversification Opportunities for Engro Fertilizers and National Bank

0.63

Correlation Coefficient

Engro Fertilizers  National Bank

Poor diversification

The 3 months correlation between Engro and National is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Engro Fertilizers and National Bank of in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Bank 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 National Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Bank has no effect on the direction of Engro Fertilizers i.e., Engro Fertilizers and National Bank go up and down completely randomly.

Pair Corralation between Engro Fertilizers and National Bank

Assuming the 90 days trading horizon Engro Fertilizers is expected to generate 2.33 times less return on investment than National Bank. But when comparing it to its historical volatility, Engro Fertilizers is 2.02 times less risky than National Bank. It trades about 0.1 of its potential returns per unit of risk. National Bank of is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  3,802  in National Bank of on September 27, 2024 and sell it today you would earn a total of  2,083  from holding National Bank of or generate 54.79% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.2%
Values	Daily Returns

Engro Fertilizers  vs.  National Bank of

Engro Fertilizers

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Engro Fertilizers are ranked lower than 5 (%) 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.

National Bank

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in National Bank of are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, National Bank is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Engro Fertilizers and National Bank

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

The idea behind Engro Fertilizers and National Bank of 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.