Correlation Between MCB Bank and Nishat Mills

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

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

Diversification Opportunities for MCB Bank and Nishat Mills

0.67

Correlation Coefficient

MCB Bank  Nishat Mills

Poor diversification

The 3 months correlation between MCB and Nishat is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding MCB Bank and Nishat Mills in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nishat 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 Nishat Mills. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nishat Mills has no effect on the direction of MCB Bank i.e., MCB Bank and Nishat Mills go up and down completely randomly.

Pair Corralation between MCB Bank and Nishat Mills

Assuming the 90 days trading horizon MCB Bank is expected to generate 47.6 times less return on investment than Nishat Mills. But when comparing it to its historical volatility, MCB Bank is 1.61 times less risky than Nishat Mills. It trades about 0.0 of its potential returns per unit of risk. Nishat Mills is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  9,920  in Nishat Mills on October 7, 2024 and sell it today you would earn a total of  1,000.00  from holding Nishat Mills or generate 10.08% return on investment over 90 days.

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

MCB Bank  vs.  Nishat Mills

MCB Bank

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in MCB Bank are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Even with relatively conflicting basic indicators, MCB Bank reported solid returns over the last few months and may actually be approaching a breakup point.

Nishat Mills

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Nishat Mills are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Nishat Mills reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with MCB Bank and Nishat Mills

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

The idea behind MCB Bank and Nishat 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.