Correlation Between EFU General and Roshan Packages

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

Diversification Opportunities for EFU General and Roshan Packages

0.59

Correlation Coefficient

EFU General  Roshan Packages

Very weak diversification

The 3 months correlation between EFU and Roshan is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding EFU General Insurance and Roshan Packages in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Roshan Packages 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 Roshan Packages. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Roshan Packages has no effect on the direction of EFU General i.e., EFU General and Roshan Packages go up and down completely randomly.

Pair Corralation between EFU General and Roshan Packages

Assuming the 90 days trading horizon EFU General Insurance is expected to under-perform the Roshan Packages. In addition to that, EFU General is 1.39 times more volatile than Roshan Packages. It trades about -0.08 of its total potential returns per unit of risk. Roshan Packages is currently generating about 0.04 per unit of volatility. If you would invest  1,778  in Roshan Packages on October 26, 2024 and sell it today you would earn a total of  25.00  from holding Roshan Packages or generate 1.41% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.24%
Values	Daily Returns

EFU General Insurance  vs.  Roshan Packages

EFU General Insurance

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in EFU General Insurance are ranked lower than 9 (%) 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.

Roshan Packages

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Roshan Packages are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Roshan Packages reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with EFU General and Roshan Packages

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

The idea behind EFU General Insurance and Roshan Packages 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.

Check out your portfolio center.

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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.