Correlation Between ITTEFAQ Iron and Engro

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

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

Diversification Opportunities for ITTEFAQ Iron and Engro

0.66

Correlation Coefficient

ITTEFAQ Iron  Engro

Poor diversification

The 3 months correlation between ITTEFAQ and Engro is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding ITTEFAQ Iron Industries and Engro in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Engro and ITTEFAQ Iron 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 ITTEFAQ Iron Industries are associated (or correlated) with Engro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Engro has no effect on the direction of ITTEFAQ Iron i.e., ITTEFAQ Iron and Engro go up and down completely randomly.

Pair Corralation between ITTEFAQ Iron and Engro

Assuming the 90 days trading horizon ITTEFAQ Iron is expected to generate 1.61 times less return on investment than Engro. In addition to that, ITTEFAQ Iron is 1.83 times more volatile than Engro. It trades about 0.02 of its total potential returns per unit of risk. Engro is currently generating about 0.07 per unit of volatility. If you would invest  21,064  in Engro on September 4, 2024 and sell it today you would earn a total of  14,745  from holding Engro or generate 70.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.59%
Values	Daily Returns

ITTEFAQ Iron Industries  vs.  Engro

ITTEFAQ Iron Industries

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ITTEFAQ Iron Industries are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak technical and fundamental indicators, ITTEFAQ Iron may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Engro

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Engro are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite quite weak technical and fundamental indicators, Engro disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ITTEFAQ Iron and Engro

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

The idea behind ITTEFAQ Iron Industries and Engro 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.