Correlation Between Engro Fertilizers and Oil

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

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

Diversification Opportunities for Engro Fertilizers and Oil

0.54

Correlation Coefficient

Engro Fertilizers  Oil

Very weak diversification

The 3 months correlation between Engro and Oil is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Engro Fertilizers and Oil and Gas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Oil and Gas 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 Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Oil and Gas has no effect on the direction of Engro Fertilizers i.e., Engro Fertilizers and Oil go up and down completely randomly.

Pair Corralation between Engro Fertilizers and Oil

Assuming the 90 days trading horizon Engro Fertilizers is expected to generate 0.66 times more return on investment than Oil. However, Engro Fertilizers is 1.52 times less risky than Oil. It trades about 0.18 of its potential returns per unit of risk. Oil and Gas is currently generating about 0.11 per unit of risk. If you would invest  5,429  in Engro Fertilizers on October 11, 2024 and sell it today you would earn a total of  16,798  from holding Engro Fertilizers or generate 309.41% return on investment over 90 days.

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

Engro Fertilizers  vs.  Oil and Gas

Engro Fertilizers

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Engro Fertilizers are ranked lower than 7 (%) 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.

Oil and Gas

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Oil and Gas are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Oil sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Engro Fertilizers and Oil

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

The idea behind Engro Fertilizers and Oil and Gas 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.