Correlation Between Engro and Artistic Denim

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

By analyzing existing cross correlation between Engro and Artistic Denim Mills, you can compare the effects of market volatilities on Engro and Artistic Denim 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 Engro with a short position of Artistic Denim. Check out your portfolio center. Please also check ongoing floating volatility patterns of Engro and Artistic Denim.

Diversification Opportunities for Engro and Artistic Denim

0.95

Correlation Coefficient

Engro  Artistic Denim

Almost no diversification

The 3 months correlation between Engro and Artistic is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Engro and Artistic Denim Mills in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Artistic Denim Mills and Engro 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 Engro are associated (or correlated) with Artistic Denim. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Artistic Denim Mills has no effect on the direction of Engro i.e., Engro and Artistic Denim go up and down completely randomly.

Pair Corralation between Engro and Artistic Denim

Assuming the 90 days trading horizon Engro is expected to generate 2.2 times more return on investment than Artistic Denim. However, Engro is 2.2 times more volatile than Artistic Denim Mills. It trades about 0.22 of its potential returns per unit of risk. Artistic Denim Mills is currently generating about 0.01 per unit of risk. If you would invest  41,842  in Engro on October 8, 2024 and sell it today you would earn a total of  6,696  from holding Engro or generate 16.0% return on investment over 90 days.

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

Engro  vs.  Artistic Denim Mills

Engro

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Engro are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite quite weak technical and fundamental indicators, Engro disclosed solid returns over the last few months and may actually be approaching a breakup point.

Artistic Denim Mills

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Artistic Denim Mills are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Artistic Denim sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Engro and Artistic Denim

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

The idea behind Engro and Artistic Denim Mills 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.