Correlation Between Habib Bank and KOT Addu

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

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

Diversification Opportunities for Habib Bank and KOT Addu

0.84

Correlation Coefficient

Habib Bank  KOT Addu

Very poor diversification

The 3 months correlation between Habib and KOT is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Habib Bank and KOT Addu Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KOT Addu Power 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 KOT Addu. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KOT Addu Power has no effect on the direction of Habib Bank i.e., Habib Bank and KOT Addu go up and down completely randomly.

Pair Corralation between Habib Bank and KOT Addu

Assuming the 90 days trading horizon Habib Bank is expected to generate 2.02 times more return on investment than KOT Addu. However, Habib Bank is 2.02 times more volatile than KOT Addu Power. It trades about 0.08 of its potential returns per unit of risk. KOT Addu Power is currently generating about 0.13 per unit of risk. If you would invest  17,452  in Habib Bank on October 6, 2024 and sell it today you would earn a total of  698.00  from holding Habib Bank or generate 4.0% 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.  KOT Addu Power

Habib Bank

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Habib Bank are ranked lower than 16 (%) 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.

KOT Addu Power

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in KOT Addu Power are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, KOT Addu disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Habib Bank and KOT Addu

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

The idea behind Habib Bank and KOT Addu Power 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.