Correlation Between Engro Polymer and K Electric

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

Diversification Opportunities for Engro Polymer and K Electric

0.9

Correlation Coefficient

Engro Polymer  K Electric

Almost no diversification

The 3 months correlation between Engro and KEL is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Engro Polymer Chemicals and K Electric in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on K Electric 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 K Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of K Electric has no effect on the direction of Engro Polymer i.e., Engro Polymer and K Electric go up and down completely randomly.

Pair Corralation between Engro Polymer and K Electric

Assuming the 90 days trading horizon Engro Polymer Chemicals is expected to generate 0.45 times more return on investment than K Electric. However, Engro Polymer Chemicals is 2.22 times less risky than K Electric. It trades about -0.19 of its potential returns per unit of risk. K Electric is currently generating about -0.23 per unit of risk. If you would invest  3,999  in Engro Polymer Chemicals on October 10, 2024 and sell it today you would lose (278.00) from holding Engro Polymer Chemicals or give up 6.95% of portfolio value over 90 days.

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

Engro Polymer Chemicals  vs.  K Electric

Engro Polymer Chemicals

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Engro Polymer Chemicals are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Engro Polymer sustained solid returns over the last few months and may actually be approaching a breakup point.

K Electric

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in K Electric are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, K Electric reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Engro Polymer and K Electric

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

The idea behind Engro Polymer Chemicals and K Electric 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.