Correlation Between MCB Investment and Pak Datacom

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

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

Diversification Opportunities for MCB Investment and Pak Datacom

0.69

Correlation Coefficient

MCB Investment  Pak Datacom

Poor diversification

The 3 months correlation between MCB and Pak is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding MCB Investment Manag and Pak Datacom in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pak Datacom and MCB Investment 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 Investment Manag are associated (or correlated) with Pak Datacom. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pak Datacom has no effect on the direction of MCB Investment i.e., MCB Investment and Pak Datacom go up and down completely randomly.

Pair Corralation between MCB Investment and Pak Datacom

Assuming the 90 days trading horizon MCB Investment is expected to generate 1.2 times less return on investment than Pak Datacom. But when comparing it to its historical volatility, MCB Investment Manag is 1.27 times less risky than Pak Datacom. It trades about 0.31 of its potential returns per unit of risk. Pak Datacom is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest  6,848  in Pak Datacom on October 10, 2024 and sell it today you would earn a total of  7,564  from holding Pak Datacom or generate 110.46% return on investment over 90 days.

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

MCB Investment Manag  vs.  Pak Datacom

MCB Investment Manag

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in MCB Investment Manag are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. Despite quite weak fundamental drivers, MCB Investment disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pak Datacom

Risk-Adjusted Performance

22 of 100

Solid

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

Pair Trading with MCB Investment and Pak Datacom

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

The idea behind MCB Investment Manag and Pak Datacom 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.

Check out your portfolio center.

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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.