Correlation Between K Electric and Shell Pakistan

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

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

Diversification Opportunities for K Electric and Shell Pakistan

0.55

Correlation Coefficient

K Electric  Shell Pakistan

Very weak diversification

The 3 months correlation between KEL and Shell is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding K Electric and Shell Pakistan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shell Pakistan 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 Shell Pakistan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shell Pakistan has no effect on the direction of K Electric i.e., K Electric and Shell Pakistan go up and down completely randomly.

Pair Corralation between K Electric and Shell Pakistan

Assuming the 90 days trading horizon K Electric is expected to generate 2.27 times more return on investment than Shell Pakistan. However, K Electric is 2.27 times more volatile than Shell Pakistan. It trades about 0.15 of its potential returns per unit of risk. Shell Pakistan is currently generating about 0.19 per unit of risk. If you would invest  418.00  in K Electric on September 3, 2024 and sell it today you would earn a total of  160.00  from holding K Electric or generate 38.28% 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.  Shell Pakistan

K Electric

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in K Electric are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, K Electric reported solid returns over the last few months and may actually be approaching a breakup point.

Shell Pakistan

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shell Pakistan are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shell Pakistan sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with K Electric and Shell Pakistan

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

The idea behind K Electric and Shell Pakistan 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.