Correlation Between Habib Bank and Bank Alfalah

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

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

Diversification Opportunities for Habib Bank and Bank Alfalah

0.86

Correlation Coefficient

Habib Bank  Bank Alfalah

Very poor diversification

The 3 months correlation between Habib and Bank is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Habib Bank and Bank Alfalah in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank Alfalah and Habib Bank 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 Habib Bank are associated (or correlated) with Bank Alfalah. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank Alfalah has no effect on the direction of Habib Bank i.e., Habib Bank and Bank Alfalah go up and down completely randomly.

Pair Corralation between Habib Bank and Bank Alfalah

Assuming the 90 days trading horizon Habib Bank is expected to generate 1.2 times more return on investment than Bank Alfalah. However, Habib Bank is 1.2 times more volatile than Bank Alfalah. It trades about 0.01 of its potential returns per unit of risk. Bank Alfalah is currently generating about -0.07 per unit of risk. If you would invest  15,196  in Habib Bank on December 27, 2024 and sell it today you would earn a total of  93.00  from holding Habib Bank or generate 0.61% return on investment over 90 days.

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

Habib Bank  vs.  Bank Alfalah

Habib Bank

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Habib Bank are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Habib Bank is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Bank Alfalah

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Habib Bank and Bank Alfalah

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

The idea behind Habib Bank and Bank Alfalah 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.