Correlation Between Habib Bank and Engro Fertilizers

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

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

Diversification Opportunities for Habib Bank and Engro Fertilizers

0.68

Correlation Coefficient

Habib Bank  Engro Fertilizers

Poor diversification

The 3 months correlation between Habib and Engro is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Habib Bank and Engro Fertilizers in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Engro Fertilizers 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 Engro Fertilizers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Engro Fertilizers has no effect on the direction of Habib Bank i.e., Habib Bank and Engro Fertilizers go up and down completely randomly.

Pair Corralation between Habib Bank and Engro Fertilizers

Assuming the 90 days trading horizon Habib Bank is expected to generate 1.59 times less return on investment than Engro Fertilizers. In addition to that, Habib Bank is 1.18 times more volatile than Engro Fertilizers. It trades about 0.1 of its total potential returns per unit of risk. Engro Fertilizers is currently generating about 0.19 per unit of volatility. If you would invest  8,875  in Engro Fertilizers on September 27, 2024 and sell it today you would earn a total of  11,271  from holding Engro Fertilizers or generate 127.0% return on investment over 90 days.

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

Habib Bank  vs.  Engro Fertilizers

Habib Bank

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Habib Bank are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Habib Bank reported solid returns over the last few months and may actually be approaching a breakup point.

Engro Fertilizers

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Engro Fertilizers are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite weak technical and fundamental indicators, Engro Fertilizers may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Habib Bank and Engro Fertilizers

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

The idea behind Habib Bank and Engro Fertilizers 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.