Correlation Between Matco Foods and Pakistan State

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

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

Diversification Opportunities for Matco Foods and Pakistan State

0.94

Correlation Coefficient

Matco Foods  Pakistan State

Almost no diversification

The 3 months correlation between Matco and Pakistan is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Matco Foods and Pakistan State Oil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pakistan State Oil and Matco Foods 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 Matco Foods are associated (or correlated) with Pakistan State. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pakistan State Oil has no effect on the direction of Matco Foods i.e., Matco Foods and Pakistan State go up and down completely randomly.

Pair Corralation between Matco Foods and Pakistan State

Assuming the 90 days trading horizon Matco Foods is expected to generate 0.95 times more return on investment than Pakistan State. However, Matco Foods is 1.06 times less risky than Pakistan State. It trades about 0.68 of its potential returns per unit of risk. Pakistan State Oil is currently generating about 0.58 per unit of risk. If you would invest  2,731  in Matco Foods on September 27, 2024 and sell it today you would earn a total of  2,151  from holding Matco Foods or generate 78.76% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	95.65%
Values	Daily Returns

Matco Foods  vs.  Pakistan State Oil

Matco Foods

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Matco Foods are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Matco Foods reported solid returns over the last few months and may actually be approaching a breakup point.

Pakistan State Oil

Risk-Adjusted Performance

37 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Pakistan State Oil are ranked lower than 37 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Pakistan State reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Matco Foods and Pakistan State

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

The idea behind Matco Foods and Pakistan State Oil 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.