Correlation Between Engro Polymer and International Steels

Can any of the company-specific risk be diversified away by investing in both Engro Polymer and International Steels 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 International Steels 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 International Steels, you can compare the effects of market volatilities on Engro Polymer and International Steels 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 International Steels. Check out your portfolio center. Please also check ongoing floating volatility patterns of Engro Polymer and International Steels.

Diversification Opportunities for Engro Polymer and International Steels

0.54

Correlation Coefficient

Engro Polymer  International Steels

Very weak diversification

The 3 months correlation between Engro and International is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Engro Polymer Chemicals and International Steels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Steels 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 International Steels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Steels has no effect on the direction of Engro Polymer i.e., Engro Polymer and International Steels go up and down completely randomly.

Pair Corralation between Engro Polymer and International Steels

Assuming the 90 days trading horizon Engro Polymer is expected to generate 4.08 times less return on investment than International Steels. But when comparing it to its historical volatility, Engro Polymer Chemicals is 1.1 times less risky than International Steels. It trades about 0.02 of its potential returns per unit of risk. International Steels is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  7,020  in International Steels on September 4, 2024 and sell it today you would earn a total of  860.00  from holding International Steels or generate 12.25% return on investment over 90 days.

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

Engro Polymer Chemicals  vs.  International Steels

Engro Polymer Chemicals

Risk-Adjusted Performance

1 of 100

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.

International Steels

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in International Steels are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, International Steels reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Engro Polymer and International Steels

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

The idea behind Engro Polymer Chemicals and International Steels 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.