Correlation Between Lucky Cement and Habib Bank

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

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

Diversification Opportunities for Lucky Cement and Habib Bank

0.61

Correlation Coefficient

Lucky Cement  Habib Bank

Poor diversification

The 3 months correlation between Lucky and Habib is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Lucky Cement and Habib Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Habib Bank and Lucky Cement 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 Lucky Cement are associated (or correlated) with Habib Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Habib Bank has no effect on the direction of Lucky Cement i.e., Lucky Cement and Habib Bank go up and down completely randomly.

Pair Corralation between Lucky Cement and Habib Bank

Assuming the 90 days trading horizon Lucky Cement is expected to generate 1.78 times less return on investment than Habib Bank. But when comparing it to its historical volatility, Lucky Cement is 1.36 times less risky than Habib Bank. It trades about 0.21 of its potential returns per unit of risk. Habib Bank is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest  11,511  in Habib Bank on September 5, 2024 and sell it today you would earn a total of  6,313  from holding Habib Bank or generate 54.84% return on investment over 90 days.

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

Lucky Cement  vs.  Habib Bank

Lucky Cement

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Lucky Cement are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Lucky Cement sustained solid returns over the last few months and may actually be approaching a breakup point.

Habib Bank

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Habib Bank are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Habib Bank reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lucky Cement and Habib Bank

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

The idea behind Lucky Cement and Habib Bank 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.