Correlation Between EFU General and Bank Alfalah

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

By analyzing existing cross correlation between EFU General Insurance and Bank Alfalah, you can compare the effects of market volatilities on EFU General and Bank Alfalah 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 EFU General with a short position of Bank Alfalah. Check out your portfolio center. Please also check ongoing floating volatility patterns of EFU General and Bank Alfalah.

Diversification Opportunities for EFU General and Bank Alfalah

-0.62

Correlation Coefficient

EFU General  Bank Alfalah

Excellent diversification

The 3 months correlation between EFU and Bank is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding EFU General Insurance and Bank Alfalah in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank Alfalah and EFU General 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 EFU General Insurance are associated (or correlated) with Bank Alfalah. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank Alfalah has no effect on the direction of EFU General i.e., EFU General and Bank Alfalah go up and down completely randomly.

Pair Corralation between EFU General and Bank Alfalah

Assuming the 90 days trading horizon EFU General Insurance is expected to generate 2.1 times more return on investment than Bank Alfalah. However, EFU General is 2.1 times more volatile than Bank Alfalah. It trades about 0.07 of its potential returns per unit of risk. Bank Alfalah is currently generating about -0.16 per unit of risk. If you would invest  11,419  in EFU General Insurance on December 29, 2024 and sell it today you would earn a total of  1,070  from holding EFU General Insurance or generate 9.37% return on investment over 90 days.

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

EFU General Insurance  vs.  Bank Alfalah

EFU General Insurance

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in EFU General Insurance are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, EFU General may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Bank Alfalah

Risk-Adjusted Performance

Very Weak

Over the last 90 days Bank Alfalah has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with EFU General and Bank Alfalah

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

The idea behind EFU General Insurance and Bank Alfalah 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.