Correlation Between Mari Petroleum and Nestle Pakistan

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

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

Diversification Opportunities for Mari Petroleum and Nestle Pakistan

-0.58

Correlation Coefficient

Mari Petroleum  Nestle Pakistan

Excellent diversification

The 3 months correlation between Mari and Nestle is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Mari Petroleum and Nestle Pakistan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nestle Pakistan 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 Nestle Pakistan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nestle Pakistan has no effect on the direction of Mari Petroleum i.e., Mari Petroleum and Nestle Pakistan go up and down completely randomly.

Pair Corralation between Mari Petroleum and Nestle Pakistan

Assuming the 90 days trading horizon Mari Petroleum is expected to generate 8.84 times more return on investment than Nestle Pakistan. However, Mari Petroleum is 8.84 times more volatile than Nestle Pakistan. It trades about 0.17 of its potential returns per unit of risk. Nestle Pakistan is currently generating about -0.05 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 Against
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Mari Petroleum  vs.  Nestle Pakistan

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.

Nestle Pakistan

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Mari Petroleum and Nestle Pakistan

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

The idea behind Mari Petroleum and Nestle 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 Commodity Directory module to find actively traded commodities issued by global exchanges.