Correlation Between Habib Metropolitan and Ghandhara Automobile

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

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

Diversification Opportunities for Habib Metropolitan and Ghandhara Automobile

0.59

Correlation Coefficient

Habib Metropolitan  Ghandhara Automobile

Very weak diversification

The 3 months correlation between Habib and Ghandhara is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Habib Metropolitan Bank and Ghandhara Automobile in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ghandhara Automobile and Habib Metropolitan 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 Metropolitan Bank are associated (or correlated) with Ghandhara Automobile. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ghandhara Automobile has no effect on the direction of Habib Metropolitan i.e., Habib Metropolitan and Ghandhara Automobile go up and down completely randomly.

Pair Corralation between Habib Metropolitan and Ghandhara Automobile

Assuming the 90 days trading horizon Habib Metropolitan Bank is expected to generate 0.94 times more return on investment than Ghandhara Automobile. However, Habib Metropolitan Bank is 1.06 times less risky than Ghandhara Automobile. It trades about 0.17 of its potential returns per unit of risk. Ghandhara Automobile is currently generating about 0.14 per unit of risk. If you would invest  8,722  in Habib Metropolitan Bank on October 6, 2024 and sell it today you would earn a total of  937.00  from holding Habib Metropolitan Bank or generate 10.74% return on investment over 90 days.

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

Habib Metropolitan Bank  vs.  Ghandhara Automobile

Habib Metropolitan Bank

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Habib Metropolitan Bank are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Habib Metropolitan reported solid returns over the last few months and may actually be approaching a breakup point.

Ghandhara Automobile

Risk-Adjusted Performance

15 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Ghandhara Automobile are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Even with relatively conflicting basic indicators, Ghandhara Automobile reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Habib Metropolitan and Ghandhara Automobile

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

The idea behind Habib Metropolitan Bank and Ghandhara Automobile 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.