Correlation Between Engro and Hub Power

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

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

Diversification Opportunities for Engro and Hub Power

0.86

Correlation Coefficient

Engro  Hub Power

Very poor diversification

The 3 months correlation between Engro and Hub is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Engro and Hub Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hub Power 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 Hub Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hub Power has no effect on the direction of Engro i.e., Engro and Hub Power go up and down completely randomly.

Pair Corralation between Engro and Hub Power

Assuming the 90 days trading horizon Engro is expected to generate 1.75 times more return on investment than Hub Power. However, Engro is 1.75 times more volatile than Hub Power. It trades about 0.38 of its potential returns per unit of risk. Hub Power is currently generating about 0.09 per unit of risk. If you would invest  43,567  in Engro on October 23, 2024 and sell it today you would earn a total of  4,971  from holding Engro or generate 11.41% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	47.37%
Values	Daily Returns

Engro  vs.  Hub Power

Engro

Risk-Adjusted Performance

0 of 100

Solid

Over the last 90 days Engro has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite weak technical and fundamental indicators, Engro disclosed solid returns over the last few months and may actually be approaching a breakup point.

Hub Power

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Hub Power are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hub Power sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Engro and Hub Power

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

The idea behind Engro and Hub Power 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.