Correlation Between ITTEFAQ Iron and Pakistan Aluminium

Can any of the company-specific risk be diversified away by investing in both ITTEFAQ Iron 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 ITTEFAQ Iron and Pakistan Aluminium 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 Pakistan Aluminium Beverage, you can compare the effects of market volatilities on ITTEFAQ Iron 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 ITTEFAQ Iron with a short position of Pakistan Aluminium. Check out your portfolio center. Please also check ongoing floating volatility patterns of ITTEFAQ Iron and Pakistan Aluminium.

Diversification Opportunities for ITTEFAQ Iron and Pakistan Aluminium

0.75

Correlation Coefficient

ITTEFAQ Iron  Pakistan Aluminium

Poor diversification

The 3 months correlation between ITTEFAQ and Pakistan is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding ITTEFAQ Iron Industries and Pakistan Aluminium Beverage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pakistan Aluminium 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 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 ITTEFAQ Iron i.e., ITTEFAQ Iron and Pakistan Aluminium go up and down completely randomly.

Pair Corralation between ITTEFAQ Iron and Pakistan Aluminium

Assuming the 90 days trading horizon ITTEFAQ Iron is expected to generate 3.38 times less return on investment than Pakistan Aluminium. In addition to that, ITTEFAQ Iron is 1.18 times more volatile than Pakistan Aluminium Beverage. It trades about 0.03 of its total potential returns per unit of risk. Pakistan Aluminium Beverage is currently generating about 0.13 per unit of volatility. If you would invest  4,360  in Pakistan Aluminium Beverage on September 13, 2024 and sell it today you would earn a total of  7,764  from holding Pakistan Aluminium Beverage or generate 178.07% return on investment over 90 days.

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

ITTEFAQ Iron Industries  vs.  Pakistan Aluminium Beverage

ITTEFAQ Iron Industries

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ITTEFAQ Iron Industries are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak technical and fundamental indicators, ITTEFAQ Iron reported solid returns over the last few months and may actually be approaching a breakup point.

Pakistan Aluminium

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Pakistan Aluminium Beverage are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Pakistan Aluminium sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ITTEFAQ Iron and Pakistan Aluminium

The main advantage of trading using opposite ITTEFAQ Iron and Pakistan Aluminium positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ITTEFAQ Iron 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 ITTEFAQ Iron Industries 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.