Correlation Between JS Investments and Engro Fertilizers

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

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

Diversification Opportunities for JS Investments and Engro Fertilizers

0.48

Correlation Coefficient

JS Investments  Engro Fertilizers

Very weak diversification

The 3 months correlation between JSIL and Engro is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding JS Investments and Engro Fertilizers in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Engro Fertilizers and JS Investments 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 JS Investments are associated (or correlated) with Engro Fertilizers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Engro Fertilizers has no effect on the direction of JS Investments i.e., JS Investments and Engro Fertilizers go up and down completely randomly.

Pair Corralation between JS Investments and Engro Fertilizers

Assuming the 90 days trading horizon JS Investments is expected to generate 1.28 times less return on investment than Engro Fertilizers. In addition to that, JS Investments is 2.36 times more volatile than Engro Fertilizers. It trades about 0.06 of its total potential returns per unit of risk. Engro Fertilizers is currently generating about 0.18 per unit of volatility. If you would invest  5,550  in Engro Fertilizers on October 9, 2024 and sell it today you would earn a total of  17,817  from holding Engro Fertilizers or generate 321.03% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	67.01%
Values	Daily Returns

JS Investments  vs.  Engro Fertilizers

JS Investments

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in JS Investments are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, JS Investments may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Engro Fertilizers

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Engro Fertilizers are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite quite weak technical and fundamental indicators, Engro Fertilizers disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with JS Investments and Engro Fertilizers

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

The idea behind JS Investments and Engro Fertilizers 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.