Correlation Between K Electric and Engro Fertilizers
Can any of the company-specific risk be diversified away by investing in both K Electric 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 K Electric and Engro Fertilizers into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between K Electric and Engro Fertilizers, you can compare the effects of market volatilities on K Electric 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 K Electric with a short position of Engro Fertilizers. Check out your portfolio center. Please also check ongoing floating volatility patterns of K Electric and Engro Fertilizers.
Diversification Opportunities for K Electric and Engro Fertilizers
0.56 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between KEL and Engro is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding K Electric and Engro Fertilizers in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Engro Fertilizers and K Electric 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 K Electric 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 K Electric i.e., K Electric and Engro Fertilizers go up and down completely randomly.
Pair Corralation between K Electric and Engro Fertilizers
Assuming the 90 days trading horizon K Electric is expected to generate 1.8 times more return on investment than Engro Fertilizers. However, K Electric is 1.8 times more volatile than Engro Fertilizers. It trades about 0.14 of its potential returns per unit of risk. Engro Fertilizers is currently generating about 0.15 per unit of risk. If you would invest 375.00 in K Electric on October 7, 2024 and sell it today you would earn a total of 143.00 from holding K Electric or generate 38.13% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Weak |
Accuracy | 100.0% |
Values | Daily Returns |
K Electric vs. Engro Fertilizers
Performance |
Timeline |
K Electric |
Engro Fertilizers |
K Electric and Engro Fertilizers Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with K Electric and Engro Fertilizers
The main advantage of trading using opposite K Electric and Engro Fertilizers positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if K Electric 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.K Electric vs. Pakistan Telecommunication | K Electric vs. Unilever Pakistan Foods | K Electric vs. AKD Hospitality | K Electric vs. MCB Investment Manag |
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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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.
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