Correlation Between Gatron Industries and Masood Textile

Can any of the company-specific risk be diversified away by investing in both Gatron Industries and Masood Textile 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 Gatron Industries and Masood Textile into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Gatron Industries and Masood Textile Mills, you can compare the effects of market volatilities on Gatron Industries and Masood Textile 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 Gatron Industries with a short position of Masood Textile. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gatron Industries and Masood Textile.

Diversification Opportunities for Gatron Industries and Masood Textile

0.62

Correlation Coefficient

Gatron Industries  Masood Textile

Poor diversification

The 3 months correlation between Gatron and Masood is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Gatron Industries and Masood Textile Mills in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Masood Textile Mills and Gatron Industries 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 Gatron Industries are associated (or correlated) with Masood Textile. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Masood Textile Mills has no effect on the direction of Gatron Industries i.e., Gatron Industries and Masood Textile go up and down completely randomly.

Pair Corralation between Gatron Industries and Masood Textile

Assuming the 90 days trading horizon Gatron Industries is expected to generate 64.47 times less return on investment than Masood Textile. But when comparing it to its historical volatility, Gatron Industries is 4.35 times less risky than Masood Textile. It trades about 0.01 of its potential returns per unit of risk. Masood Textile Mills is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  4,400  in Masood Textile Mills on September 15, 2024 and sell it today you would earn a total of  887.00  from holding Masood Textile Mills or generate 20.16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	90.91%
Values	Daily Returns

Gatron Industries  vs.  Masood Textile Mills

Gatron Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gatron Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Gatron Industries is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Masood Textile Mills

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Masood Textile Mills has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Masood Textile is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Gatron Industries and Masood Textile

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

The idea behind Gatron Industries and Masood Textile Mills 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.