Correlation Between Engro Polymer and Faysal Bank

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

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

Diversification Opportunities for Engro Polymer and Faysal Bank

0.24

Correlation Coefficient

Engro Polymer  Faysal Bank

Modest diversification

The 3 months correlation between Engro and Faysal is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Engro Polymer Chemicals and Faysal Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Faysal Bank and Engro Polymer 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 Polymer Chemicals are associated (or correlated) with Faysal Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Faysal Bank has no effect on the direction of Engro Polymer i.e., Engro Polymer and Faysal Bank go up and down completely randomly.

Pair Corralation between Engro Polymer and Faysal Bank

Assuming the 90 days trading horizon Engro Polymer is expected to generate 1.49 times less return on investment than Faysal Bank. In addition to that, Engro Polymer is 1.32 times more volatile than Faysal Bank. It trades about 0.02 of its total potential returns per unit of risk. Faysal Bank is currently generating about 0.04 per unit of volatility. If you would invest  4,650  in Faysal Bank on December 30, 2024 and sell it today you would earn a total of  154.00  from holding Faysal Bank or generate 3.31% return on investment over 90 days.

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

Engro Polymer Chemicals  vs.  Faysal Bank

Engro Polymer Chemicals

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Engro Polymer Chemicals are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Engro Polymer is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Faysal Bank

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Faysal Bank are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Faysal Bank is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Engro Polymer and Faysal Bank

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

The idea behind Engro Polymer Chemicals and Faysal 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .