Correlation Between EFU General and Pakistan Telecommunicatio

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

Diversification Opportunities for EFU General and Pakistan Telecommunicatio

0.73

Correlation Coefficient

EFU General  Pakistan Telecommunicatio

Poor diversification

The 3 months correlation between EFU and Pakistan is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding EFU General Insurance and Pakistan Telecommunication in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pakistan Telecommunicatio 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 Telecommunicatio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pakistan Telecommunicatio has no effect on the direction of EFU General i.e., EFU General and Pakistan Telecommunicatio go up and down completely randomly.

Pair Corralation between EFU General and Pakistan Telecommunicatio

Assuming the 90 days trading horizon EFU General is expected to generate 2.65 times less return on investment than Pakistan Telecommunicatio. But when comparing it to its historical volatility, EFU General Insurance is 1.17 times less risky than Pakistan Telecommunicatio. It trades about 0.14 of its potential returns per unit of risk. Pakistan Telecommunication is currently generating about 0.33 of returns per unit of risk over similar time horizon. If you would invest  1,157  in Pakistan Telecommunication on September 15, 2024 and sell it today you would earn a total of  1,502  from holding Pakistan Telecommunication or generate 129.82% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

EFU General Insurance  vs.  Pakistan Telecommunication

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 conflicting basic indicators, EFU General sustained solid returns over the last few months and may actually be approaching a breakup point.

Pakistan Telecommunicatio

Risk-Adjusted Performance

25 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Pakistan Telecommunication are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. Even with relatively conflicting basic indicators, Pakistan Telecommunicatio reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with EFU General and Pakistan Telecommunicatio

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

The idea behind EFU General Insurance and Pakistan Telecommunication 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.