Correlation Between Engro Polymer and Pakistan State

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

Diversification Opportunities for Engro Polymer and Pakistan State

0.72

Correlation Coefficient

Engro Polymer  Pakistan State

Poor diversification

The 3 months correlation between Engro and Pakistan is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Engro Polymer Chemicals and Pakistan State Oil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pakistan State Oil 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 Pakistan State. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pakistan State Oil has no effect on the direction of Engro Polymer i.e., Engro Polymer and Pakistan State go up and down completely randomly.

Pair Corralation between Engro Polymer and Pakistan State

Assuming the 90 days trading horizon Engro Polymer is expected to generate 5.01 times less return on investment than Pakistan State. But when comparing it to its historical volatility, Engro Polymer Chemicals is 1.23 times less risky than Pakistan State. It trades about 0.1 of its potential returns per unit of risk. Pakistan State Oil is currently generating about 0.42 of returns per unit of risk over similar time horizon. If you would invest  15,733  in Pakistan State Oil on September 13, 2024 and sell it today you would earn a total of  18,266  from holding Pakistan State Oil or generate 116.1% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Engro Polymer Chemicals  vs.  Pakistan State Oil

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.

Pakistan State Oil

Risk-Adjusted Performance

33 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Pakistan State Oil are ranked lower than 33 (%) of all global equities and portfolios over the last 90 days. Even with relatively conflicting basic indicators, Pakistan State reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Engro Polymer and Pakistan State

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

The idea behind Engro Polymer Chemicals and Pakistan State Oil 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 Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.