Correlation Between MCB Bank and Ashfaq Textile

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

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

Diversification Opportunities for MCB Bank and Ashfaq Textile

0.21

Correlation Coefficient

MCB Bank  Ashfaq Textile

Modest diversification

The 3 months correlation between MCB and Ashfaq is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding MCB Bank and Ashfaq Textile Mills in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ashfaq Textile Mills and MCB Bank 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 MCB Bank are associated (or correlated) with Ashfaq Textile. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ashfaq Textile Mills has no effect on the direction of MCB Bank i.e., MCB Bank and Ashfaq Textile go up and down completely randomly.

Pair Corralation between MCB Bank and Ashfaq Textile

Assuming the 90 days trading horizon MCB Bank is expected to generate 27.57 times less return on investment than Ashfaq Textile. But when comparing it to its historical volatility, MCB Bank is 3.04 times less risky than Ashfaq Textile. It trades about 0.02 of its potential returns per unit of risk. Ashfaq Textile Mills is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  1,180  in Ashfaq Textile Mills on December 29, 2024 and sell it today you would earn a total of  255.00  from holding Ashfaq Textile Mills or generate 21.61% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	68.25%
Values	Daily Returns

MCB Bank  vs.  Ashfaq Textile Mills

MCB Bank

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in MCB Bank are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, MCB Bank is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Ashfaq Textile Mills

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ashfaq Textile Mills are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Ashfaq Textile sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with MCB Bank and Ashfaq Textile

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

The idea behind MCB Bank and Ashfaq Textile Mills 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..