Correlation Between Engro and Soneri Bank

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

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

Diversification Opportunities for Engro and Soneri Bank

0.92

Correlation Coefficient

Engro  Soneri Bank

Almost no diversification

The 3 months correlation between Engro and Soneri is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Engro and Soneri Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Soneri Bank 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 Soneri Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Soneri Bank has no effect on the direction of Engro i.e., Engro and Soneri Bank go up and down completely randomly.

Pair Corralation between Engro and Soneri Bank

Assuming the 90 days trading horizon Engro is expected to generate 1.28 times more return on investment than Soneri Bank. However, Engro is 1.28 times more volatile than Soneri Bank. It trades about 0.33 of its potential returns per unit of risk. Soneri Bank is currently generating about 0.11 per unit of risk. If you would invest  32,723  in Engro on September 29, 2024 and sell it today you would earn a total of  9,843  from holding Engro or generate 30.08% 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.  Soneri Bank

Engro

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Engro are ranked lower than 17 (%) 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.

Soneri Bank

Risk-Adjusted Performance

10 of 100

OK

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

Pair Trading with Engro and Soneri Bank

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

The idea behind Engro and Soneri Bank 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.