Correlation Between Engro and Honda Atlas

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

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

Diversification Opportunities for Engro and Honda Atlas

0.63

Correlation Coefficient

Engro  Honda Atlas

Poor diversification

The 3 months correlation between Engro and Honda is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Engro and Honda Atlas Cars in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Honda Atlas Cars 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 Honda Atlas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Honda Atlas Cars has no effect on the direction of Engro i.e., Engro and Honda Atlas go up and down completely randomly.

Pair Corralation between Engro and Honda Atlas

Assuming the 90 days trading horizon Engro is expected to generate 1.08 times more return on investment than Honda Atlas. However, Engro is 1.08 times more volatile than Honda Atlas Cars. It trades about 0.34 of its potential returns per unit of risk. Honda Atlas Cars is currently generating about 0.13 per unit of risk. If you would invest  37,330  in Engro on October 6, 2024 and sell it today you would earn a total of  11,208  from holding Engro or generate 30.02% return on investment over 90 days.

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

Engro  vs.  Honda Atlas Cars

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.

Honda Atlas Cars

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Honda Atlas Cars are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Honda Atlas sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Engro and Honda Atlas

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

The idea behind Engro and Honda Atlas Cars 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.