Correlation Between Hi Tech and Pakistan State

Can any of the company-specific risk be diversified away by investing in both Hi Tech and Pakistan State 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 Pakistan State 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 Pakistan State Oil, you can compare the effects of market volatilities on Hi Tech and Pakistan State 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 Pakistan State. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hi Tech and Pakistan State.

Diversification Opportunities for Hi Tech and Pakistan State

0.83

Correlation Coefficient

Hi Tech  Pakistan State

Very poor diversification

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

Pair Corralation between Hi Tech and Pakistan State

Assuming the 90 days trading horizon Hi Tech is expected to generate 1.58 times less return on investment than Pakistan State. In addition to that, Hi Tech is 1.26 times more volatile than Pakistan State Oil. It trades about 0.08 of its total potential returns per unit of risk. Pakistan State Oil is currently generating about 0.17 per unit of volatility. If you would invest  10,020  in Pakistan State Oil on October 3, 2024 and sell it today you would earn a total of  34,049  from holding Pakistan State Oil or generate 339.81% return on investment over 90 days.

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

Hi Tech Lubricants  vs.  Pakistan State Oil

Hi Tech Lubricants

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Hi Tech Lubricants are ranked lower than 13 (%) 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.

Pakistan State Oil

Risk-Adjusted Performance

37 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Pakistan State Oil are ranked lower than 37 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Pakistan State reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hi Tech and Pakistan State

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

The idea behind Hi Tech Lubricants and Pakistan State Oil 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.