Correlation Between Engro and Bestway Cement

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

By analyzing existing cross correlation between Engro and Bestway Cement, you can compare the effects of market volatilities on Engro and Bestway Cement 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 Bestway Cement. Check out your portfolio center. Please also check ongoing floating volatility patterns of Engro and Bestway Cement.

Diversification Opportunities for Engro and Bestway Cement

0.8

Correlation Coefficient

Engro  Bestway Cement

Very poor diversification

The 3 months correlation between Engro and Bestway is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Engro and Bestway Cement in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bestway Cement 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 Bestway Cement. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bestway Cement has no effect on the direction of Engro i.e., Engro and Bestway Cement go up and down completely randomly.

Pair Corralation between Engro and Bestway Cement

Assuming the 90 days trading horizon Engro is expected to generate 1.26 times more return on investment than Bestway Cement. However, Engro is 1.26 times more volatile than Bestway Cement. It trades about 0.22 of its potential returns per unit of risk. Bestway Cement is currently generating about -0.16 per unit of risk. If you would invest  41,842  in Engro on October 9, 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	Strong
Accuracy	100.0%
Values	Daily Returns

Engro  vs.  Bestway Cement

Engro

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Engro are ranked lower than 19 (%) 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.

Bestway Cement

Risk-Adjusted Performance

18 of 100

Solid

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

Pair Trading with Engro and Bestway Cement

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

The idea behind Engro and Bestway Cement 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.