Correlation Between Habib Bank and Pakistan Petroleum

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

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

Diversification Opportunities for Habib Bank and Pakistan Petroleum

0.18

Correlation Coefficient

Habib Bank  Pakistan Petroleum

Average diversification

The 3 months correlation between Habib and Pakistan is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Habib Bank and Pakistan Petroleum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pakistan Petroleum 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 Pakistan Petroleum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pakistan Petroleum has no effect on the direction of Habib Bank i.e., Habib Bank and Pakistan Petroleum go up and down completely randomly.

Pair Corralation between Habib Bank and Pakistan Petroleum

Assuming the 90 days trading horizon Habib Bank is expected to under-perform the Pakistan Petroleum. But the stock apears to be less risky and, when comparing its historical volatility, Habib Bank is 1.98 times less risky than Pakistan Petroleum. The stock trades about -0.12 of its potential returns per unit of risk. The Pakistan Petroleum is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  19,683  in Pakistan Petroleum on December 30, 2024 and sell it today you would lose (535.00) from holding Pakistan Petroleum or give up 2.72% of portfolio value over 90 days.

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

Habib Bank  vs.  Pakistan Petroleum

Habib Bank

Risk-Adjusted Performance

Very Weak

Over the last 90 days Habib Bank has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest conflicting performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pakistan Petroleum

Risk-Adjusted Performance

Very Weak

Over the last 90 days Pakistan Petroleum has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Pakistan Petroleum is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Habib Bank and Pakistan Petroleum

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

The idea behind Habib Bank and Pakistan Petroleum 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.