Correlation Between International Steels and Unilever Pakistan

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

Diversification Opportunities for International Steels and Unilever Pakistan

0.9

Correlation Coefficient

International Steels  Unilever Pakistan

Almost no diversification

The 3 months correlation between International and Unilever is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding International Steels and Unilever Pakistan Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Unilever Pakistan Foods 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 Unilever Pakistan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Unilever Pakistan Foods has no effect on the direction of International Steels i.e., International Steels and Unilever Pakistan go up and down completely randomly.

Pair Corralation between International Steels and Unilever Pakistan

Assuming the 90 days trading horizon International Steels is expected to generate 2.32 times more return on investment than Unilever Pakistan. However, International Steels is 2.32 times more volatile than Unilever Pakistan Foods. It trades about 0.17 of its potential returns per unit of risk. Unilever Pakistan Foods is currently generating about 0.24 per unit of risk. If you would invest  7,133  in International Steels on September 26, 2024 and sell it today you would earn a total of  1,471  from holding International Steels or generate 20.62% return on investment over 90 days.

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

International Steels  vs.  Unilever Pakistan Foods

International Steels

Risk-Adjusted Performance

11 of 100

Good

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

Unilever Pakistan Foods

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Unilever Pakistan Foods are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Unilever Pakistan sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with International Steels and Unilever Pakistan

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

The idea behind International Steels and Unilever Pakistan Foods 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.

Check out your portfolio center.

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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.