Correlation Between K Electric and Pakistan Tobacco

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

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

Diversification Opportunities for K Electric and Pakistan Tobacco

0.78

Correlation Coefficient

K Electric  Pakistan Tobacco

Poor diversification

The 3 months correlation between KEL and Pakistan is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding K Electric and Pakistan Tobacco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pakistan Tobacco 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 Pakistan Tobacco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pakistan Tobacco has no effect on the direction of K Electric i.e., K Electric and Pakistan Tobacco go up and down completely randomly.

Pair Corralation between K Electric and Pakistan Tobacco

Assuming the 90 days trading horizon K Electric is expected to under-perform the Pakistan Tobacco. In addition to that, K Electric is 2.12 times more volatile than Pakistan Tobacco. It trades about -0.11 of its total potential returns per unit of risk. Pakistan Tobacco is currently generating about -0.03 per unit of volatility. If you would invest  133,957  in Pakistan Tobacco on December 30, 2024 and sell it today you would lose (4,230) from holding Pakistan Tobacco or give up 3.16% of portfolio value over 90 days.

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

K Electric  vs.  Pakistan Tobacco

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.

Pakistan Tobacco

Risk-Adjusted Performance

Very Weak

Over the last 90 days Pakistan Tobacco has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Pakistan Tobacco is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with K Electric and Pakistan Tobacco

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

The idea behind K Electric and Pakistan Tobacco 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.