Correlation Between International Steels and Pakistan Aluminium

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

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

Diversification Opportunities for International Steels and Pakistan Aluminium

0.23

Correlation Coefficient

International Steels  Pakistan Aluminium

Modest diversification

The 3 months correlation between International and Pakistan is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding International Steels and Pakistan Aluminium Beverage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pakistan Aluminium 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 Pakistan Aluminium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pakistan Aluminium has no effect on the direction of International Steels i.e., International Steels and Pakistan Aluminium go up and down completely randomly.

Pair Corralation between International Steels and Pakistan Aluminium

Assuming the 90 days trading horizon International Steels is expected to under-perform the Pakistan Aluminium. But the stock apears to be less risky and, when comparing its historical volatility, International Steels is 1.12 times less risky than Pakistan Aluminium. The stock trades about -0.06 of its potential returns per unit of risk. The Pakistan Aluminium Beverage is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  12,723  in Pakistan Aluminium Beverage on December 27, 2024 and sell it today you would lose (409.00) from holding Pakistan Aluminium Beverage or give up 3.21% of portfolio value over 90 days.

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

International Steels  vs.  Pakistan Aluminium Beverage

International Steels

Risk-Adjusted Performance

Very Weak

Over the last 90 days International Steels has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest weak 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 Aluminium

Risk-Adjusted Performance

Very Weak

Over the last 90 days Pakistan Aluminium Beverage has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Pakistan Aluminium is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with International Steels and Pakistan Aluminium

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

The idea behind International Steels and Pakistan Aluminium Beverage 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 Global Correlations module to find global opportunities by holding instruments from different markets.