Correlation Between MCB Bank and Pak Gulf

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

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

Diversification Opportunities for MCB Bank and Pak Gulf

0.77

Correlation Coefficient

MCB Bank  Pak Gulf

Poor diversification

The 3 months correlation between MCB and Pak is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding MCB Bank and Pak Gulf Leasing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pak Gulf Leasing 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 Pak Gulf. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pak Gulf Leasing has no effect on the direction of MCB Bank i.e., MCB Bank and Pak Gulf go up and down completely randomly.

Pair Corralation between MCB Bank and Pak Gulf

Assuming the 90 days trading horizon MCB Bank is expected to generate 6.82 times less return on investment than Pak Gulf. But when comparing it to its historical volatility, MCB Bank is 2.88 times less risky than Pak Gulf. It trades about 0.13 of its potential returns per unit of risk. Pak Gulf Leasing is currently generating about 0.32 of returns per unit of risk over similar time horizon. If you would invest  697.00  in Pak Gulf Leasing on October 24, 2024 and sell it today you would earn a total of  1,567  from holding Pak Gulf Leasing or generate 224.82% 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.  Pak Gulf Leasing

MCB Bank

Risk-Adjusted Performance

10 of 100

Good

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 weak basic indicators, MCB Bank reported solid returns over the last few months and may actually be approaching a breakup point.

Pak Gulf Leasing

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Pak Gulf Leasing are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting basic indicators, Pak Gulf sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with MCB Bank and Pak Gulf

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

The idea behind MCB Bank and Pak Gulf Leasing 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.