Correlation Between Hi Tech and Alfalah Consumer

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

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

Diversification Opportunities for Hi Tech and Alfalah Consumer

0.83

Correlation Coefficient

Hi Tech  Alfalah Consumer

Very poor diversification

The 3 months correlation between HTL and Alfalah is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Hi Tech Lubricants and Alfalah Consumer in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alfalah Consumer and Hi Tech 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 Hi Tech Lubricants are associated (or correlated) with Alfalah Consumer. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alfalah Consumer has no effect on the direction of Hi Tech i.e., Hi Tech and Alfalah Consumer go up and down completely randomly.

Pair Corralation between Hi Tech and Alfalah Consumer

Assuming the 90 days trading horizon Hi Tech Lubricants is expected to under-perform the Alfalah Consumer. But the stock apears to be less risky and, when comparing its historical volatility, Hi Tech Lubricants is 1.5 times less risky than Alfalah Consumer. The stock trades about -0.13 of its potential returns per unit of risk. The Alfalah Consumer is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  1,459  in Alfalah Consumer on October 23, 2024 and sell it today you would lose (11.00) from holding Alfalah Consumer or give up 0.75% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	94.74%
Values	Daily Returns

Hi Tech Lubricants  vs.  Alfalah Consumer

Hi Tech Lubricants

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hi Tech Lubricants are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Hi Tech reported solid returns over the last few months and may actually be approaching a breakup point.

Alfalah Consumer

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Alfalah Consumer are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, Alfalah Consumer sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hi Tech and Alfalah Consumer

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

The idea behind Hi Tech Lubricants and Alfalah Consumer 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.