Correlation Between Mari Petroleum and Bank Alfalah

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

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

Diversification Opportunities for Mari Petroleum and Bank Alfalah

0.61

Correlation Coefficient

Mari Petroleum  Bank Alfalah

Poor diversification

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

Pair Corralation between Mari Petroleum and Bank Alfalah

Assuming the 90 days trading horizon Mari Petroleum is expected to generate 3.03 times more return on investment than Bank Alfalah. However, Mari Petroleum is 3.03 times more volatile than Bank Alfalah. It trades about 0.17 of its potential returns per unit of risk. Bank Alfalah is currently generating about 0.29 per unit of risk. If you would invest  25,170  in Mari Petroleum on September 5, 2024 and sell it today you would earn a total of  23,245  from holding Mari Petroleum or generate 92.35% return on investment over 90 days.

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

Mari Petroleum  vs.  Bank Alfalah

Mari Petroleum

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Mari Petroleum are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Mari Petroleum sustained solid returns over the last few months and may actually be approaching a breakup point.

Bank Alfalah

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Bank Alfalah are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Bank Alfalah sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Mari Petroleum and Bank Alfalah

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

The idea behind Mari Petroleum and Bank Alfalah 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.