Correlation Between EFU General and Pakistan State

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

Diversification Opportunities for EFU General and Pakistan State

0.67

Correlation Coefficient

EFU General  Pakistan State

Poor diversification

The 3 months correlation between EFU and Pakistan is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding EFU General Insurance and Pakistan State Oil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pakistan State Oil 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 Pakistan State. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pakistan State Oil has no effect on the direction of EFU General i.e., EFU General and Pakistan State go up and down completely randomly.

Pair Corralation between EFU General and Pakistan State

Assuming the 90 days trading horizon EFU General Insurance is expected to under-perform the Pakistan State. But the stock apears to be less risky and, when comparing its historical volatility, EFU General Insurance is 1.92 times less risky than Pakistan State. The stock trades about -0.15 of its potential returns per unit of risk. The Pakistan State Oil is currently generating about 0.42 of returns per unit of risk over similar time horizon. If you would invest  30,983  in Pakistan State Oil on October 6, 2024 and sell it today you would earn a total of  12,578  from holding Pakistan State Oil or generate 40.6% return on investment over 90 days.

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

EFU General Insurance  vs.  Pakistan State Oil

EFU General Insurance

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in EFU General Insurance are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, EFU General sustained solid returns over the last few months and may actually be approaching a breakup point.

Pakistan State Oil

Risk-Adjusted Performance

33 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Pakistan State Oil are ranked lower than 33 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Pakistan State reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with EFU General and Pakistan State

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

The idea behind EFU General Insurance and Pakistan State Oil 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.