Correlation Between K Electric and Nishat Mills

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

By analyzing existing cross correlation between K Electric and Nishat Mills, you can compare the effects of market volatilities on K Electric and Nishat Mills 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 Nishat Mills. Check out your portfolio center. Please also check ongoing floating volatility patterns of K Electric and Nishat Mills.

Diversification Opportunities for K Electric and Nishat Mills

0.34

Correlation Coefficient

K Electric  Nishat Mills

Weak diversification

The 3 months correlation between KEL and Nishat is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding K Electric and Nishat Mills in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nishat Mills 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 Nishat Mills. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nishat Mills has no effect on the direction of K Electric i.e., K Electric and Nishat Mills go up and down completely randomly.

Pair Corralation between K Electric and Nishat Mills

Assuming the 90 days trading horizon K Electric is expected to under-perform the Nishat Mills. In addition to that, K Electric is 1.18 times more volatile than Nishat Mills. It trades about -0.11 of its total potential returns per unit of risk. Nishat Mills is currently generating about 0.05 per unit of volatility. If you would invest  10,473  in Nishat Mills on December 29, 2024 and sell it today you would earn a total of  548.00  from holding Nishat Mills or generate 5.23% return on investment over 90 days.

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

K Electric  vs.  Nishat Mills

K Electric

Risk-Adjusted Performance

Very Weak

Over the last 90 days K Electric has generated negative risk-adjusted returns adding no value to investors with long positions. Even with weak performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in April 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Nishat Mills

Risk-Adjusted Performance

Insignificant

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

Pair Trading with K Electric and Nishat Mills

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

The idea behind K Electric and Nishat Mills 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.