Correlation Between East West and Pakistan National

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

By analyzing existing cross correlation between East West Insurance and Pakistan National Shipping, you can compare the effects of market volatilities on East West and Pakistan National 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 East West with a short position of Pakistan National. Check out your portfolio center. Please also check ongoing floating volatility patterns of East West and Pakistan National.

Diversification Opportunities for East West and Pakistan National

0.49

Correlation Coefficient

East West  Pakistan National

Very weak diversification

The 3 months correlation between East and Pakistan is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding East West Insurance and Pakistan National Shipping in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pakistan National and East West 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 East West Insurance are associated (or correlated) with Pakistan National. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pakistan National has no effect on the direction of East West i.e., East West and Pakistan National go up and down completely randomly.

Pair Corralation between East West and Pakistan National

Assuming the 90 days trading horizon East West is expected to generate 1.47 times less return on investment than Pakistan National. In addition to that, East West is 1.46 times more volatile than Pakistan National Shipping. It trades about 0.08 of its total potential returns per unit of risk. Pakistan National Shipping is currently generating about 0.18 per unit of volatility. If you would invest  5,427  in Pakistan National Shipping on September 27, 2024 and sell it today you would earn a total of  44,720  from holding Pakistan National Shipping or generate 824.03% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	14.26%
Values	Daily Returns

East West Insurance  vs.  Pakistan National Shipping

East West Insurance

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in East West Insurance are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, East West sustained solid returns over the last few months and may actually be approaching a breakup point.

Pakistan National

Risk-Adjusted Performance

25 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Pakistan National Shipping are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Pakistan National sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with East West and Pakistan National

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

The idea behind East West Insurance and Pakistan National Shipping 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.

Check out your portfolio center.

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.