Correlation Between EFU General and Millat Tractors

Can any of the company-specific risk be diversified away by investing in both EFU General and Millat Tractors 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 Millat Tractors 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 Millat Tractors, you can compare the effects of market volatilities on EFU General and Millat Tractors 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 Millat Tractors. Check out your portfolio center. Please also check ongoing floating volatility patterns of EFU General and Millat Tractors.

Diversification Opportunities for EFU General and Millat Tractors

0.55

Correlation Coefficient

EFU General  Millat Tractors

Very weak diversification

The 3 months correlation between EFU and Millat is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding EFU General Insurance and Millat Tractors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Millat Tractors 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 Millat Tractors. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Millat Tractors has no effect on the direction of EFU General i.e., EFU General and Millat Tractors go up and down completely randomly.

Pair Corralation between EFU General and Millat Tractors

Assuming the 90 days trading horizon EFU General Insurance is expected to generate 1.21 times more return on investment than Millat Tractors. However, EFU General is 1.21 times more volatile than Millat Tractors. It trades about 0.11 of its potential returns per unit of risk. Millat Tractors is currently generating about 0.06 per unit of risk. If you would invest  8,322  in EFU General Insurance on October 7, 2024 and sell it today you would earn a total of  3,279  from holding EFU General Insurance or generate 39.4% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.39%
Values	Daily Returns

EFU General Insurance  vs.  Millat Tractors

EFU General Insurance

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in EFU General Insurance are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting basic indicators, EFU General sustained solid returns over the last few months and may actually be approaching a breakup point.

Millat Tractors

Risk-Adjusted Performance

13 of 100

Good

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

Pair Trading with EFU General and Millat Tractors

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

The idea behind EFU General Insurance and Millat Tractors 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 Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.