Correlation Between International Steels and Clover Pakistan

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

By analyzing existing cross correlation between International Steels and Clover Pakistan, you can compare the effects of market volatilities on International Steels and Clover Pakistan 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 International Steels with a short position of Clover Pakistan. Check out your portfolio center. Please also check ongoing floating volatility patterns of International Steels and Clover Pakistan.

Diversification Opportunities for International Steels and Clover Pakistan

0.88

Correlation Coefficient

International Steels  Clover Pakistan

Very poor diversification

The 3 months correlation between International and Clover is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding International Steels and Clover Pakistan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Clover Pakistan and International Steels 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 International Steels are associated (or correlated) with Clover Pakistan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Clover Pakistan has no effect on the direction of International Steels i.e., International Steels and Clover Pakistan go up and down completely randomly.

Pair Corralation between International Steels and Clover Pakistan

Assuming the 90 days trading horizon International Steels is expected to generate 2.01 times less return on investment than Clover Pakistan. But when comparing it to its historical volatility, International Steels is 1.49 times less risky than Clover Pakistan. It trades about 0.08 of its potential returns per unit of risk. Clover Pakistan is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  2,308  in Clover Pakistan on October 8, 2024 and sell it today you would earn a total of  2,959  from holding Clover Pakistan or generate 128.21% return on investment over 90 days.

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

International Steels  vs.  Clover Pakistan

International Steels

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in International Steels are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Even with relatively conflicting basic indicators, International Steels reported solid returns over the last few months and may actually be approaching a breakup point.

Clover Pakistan

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Clover Pakistan are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Clover Pakistan sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with International Steels and Clover Pakistan

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

The idea behind International Steels and Clover Pakistan 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.