Correlation Between Masood Textile and First Fidelity

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

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

Diversification Opportunities for Masood Textile and First Fidelity

0.48

Correlation Coefficient

Masood Textile  First Fidelity

Very weak diversification

The 3 months correlation between Masood and First is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Masood Textile Mills and First Fidelity Leasing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Fidelity Leasing and Masood Textile 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 Masood Textile Mills are associated (or correlated) with First Fidelity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Fidelity Leasing has no effect on the direction of Masood Textile i.e., Masood Textile and First Fidelity go up and down completely randomly.

Pair Corralation between Masood Textile and First Fidelity

Assuming the 90 days trading horizon Masood Textile Mills is expected to generate 0.6 times more return on investment than First Fidelity. However, Masood Textile Mills is 1.68 times less risky than First Fidelity. It trades about 0.06 of its potential returns per unit of risk. First Fidelity Leasing is currently generating about 0.02 per unit of risk. If you would invest  4,969  in Masood Textile Mills on October 10, 2024 and sell it today you would earn a total of  485.00  from holding Masood Textile Mills or generate 9.76% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	92.86%
Values	Daily Returns

Masood Textile Mills  vs.  First Fidelity Leasing

Masood Textile Mills

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Masood Textile Mills are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Masood Textile sustained solid returns over the last few months and may actually be approaching a breakup point.

First Fidelity Leasing

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in First Fidelity Leasing are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, First Fidelity may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Masood Textile and First Fidelity

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

The idea behind Masood Textile Mills and First Fidelity 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.