Correlation Between Engro and Kohat Cement

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

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

Diversification Opportunities for Engro and Kohat Cement

-0.58

Correlation Coefficient

Engro  Kohat Cement

Excellent diversification

The 3 months correlation between Engro and Kohat is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Engro and Kohat Cement in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kohat 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 Kohat Cement. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kohat Cement has no effect on the direction of Engro i.e., Engro and Kohat Cement go up and down completely randomly.

Pair Corralation between Engro and Kohat Cement

Assuming the 90 days trading horizon Engro is expected to generate 1.38 times less return on investment than Kohat Cement. But when comparing it to its historical volatility, Engro is 1.26 times less risky than Kohat Cement. It trades about 0.09 of its potential returns per unit of risk. Kohat Cement is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  13,582  in Kohat Cement on October 26, 2024 and sell it today you would earn a total of  23,930  from holding Kohat Cement or generate 176.19% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	97.1%
Values	Daily Returns

Engro  vs.  Kohat Cement

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.

Kohat Cement

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Kohat Cement has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Engro and Kohat Cement

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

The idea behind Engro and Kohat 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.

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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.