Correlation Between Karachi 100 and Bestway Cement

Can any of the company-specific risk be diversified away by investing in both Karachi 100 and Bestway Cement 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 Karachi 100 and Bestway Cement into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Karachi 100 and Bestway Cement, you can compare the effects of market volatilities on Karachi 100 and Bestway Cement 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 Karachi 100 with a short position of Bestway Cement. Check out your portfolio center. Please also check ongoing floating volatility patterns of Karachi 100 and Bestway Cement.

Diversification Opportunities for Karachi 100 and Bestway Cement

0.91

Correlation Coefficient

Karachi 100  Bestway Cement

Almost no diversification

The 3 months correlation between Karachi and Bestway is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Karachi 100 and Bestway Cement in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bestway Cement and Karachi 100 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 Karachi 100 are associated (or correlated) with Bestway Cement. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bestway Cement has no effect on the direction of Karachi 100 i.e., Karachi 100 and Bestway Cement go up and down completely randomly.

Pair Corralation between Karachi 100 and Bestway Cement

Assuming the 90 days trading horizon Karachi 100 is expected to generate 1.34 times less return on investment than Bestway Cement. But when comparing it to its historical volatility, Karachi 100 is 1.77 times less risky than Bestway Cement. It trades about 0.31 of its potential returns per unit of risk. Bestway Cement is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  23,942  in Bestway Cement on October 10, 2024 and sell it today you would earn a total of  11,673  from holding Bestway Cement or generate 48.76% return on investment over 90 days.

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

Karachi 100  vs.  Bestway Cement

Pair Trading with Karachi 100 and Bestway Cement

The main advantage of trading using opposite Karachi 100 and Bestway Cement positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Karachi 100 position performs unexpectedly, Bestway Cement 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 Bestway Cement will offset losses from the drop in Bestway Cement's long position.

The idea behind Karachi 100 and Bestway Cement 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 Stocks Directory module to find actively traded stocks across global markets.