Correlation Between Masood Textile and ITTEFAQ Iron

Can any of the company-specific risk be diversified away by investing in both Masood Textile and ITTEFAQ Iron 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 ITTEFAQ Iron 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 ITTEFAQ Iron Industries, you can compare the effects of market volatilities on Masood Textile and ITTEFAQ Iron 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 ITTEFAQ Iron. Check out your portfolio center. Please also check ongoing floating volatility patterns of Masood Textile and ITTEFAQ Iron.

Diversification Opportunities for Masood Textile and ITTEFAQ Iron

0.38

Correlation Coefficient

Masood Textile  ITTEFAQ Iron

Weak diversification

The 3 months correlation between Masood and ITTEFAQ is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Masood Textile Mills and ITTEFAQ Iron Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ITTEFAQ Iron Industries 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 ITTEFAQ Iron. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ITTEFAQ Iron Industries has no effect on the direction of Masood Textile i.e., Masood Textile and ITTEFAQ Iron go up and down completely randomly.

Pair Corralation between Masood Textile and ITTEFAQ Iron

Assuming the 90 days trading horizon Masood Textile is expected to generate 1.17 times less return on investment than ITTEFAQ Iron. But when comparing it to its historical volatility, Masood Textile Mills is 1.09 times less risky than ITTEFAQ Iron. It trades about 0.04 of its potential returns per unit of risk. ITTEFAQ Iron Industries is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  679.00  in ITTEFAQ Iron Industries on December 2, 2024 and sell it today you would earn a total of  42.00  from holding ITTEFAQ Iron Industries or generate 6.19% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	87.3%
Values	Daily Returns

Masood Textile Mills  vs.  ITTEFAQ Iron Industries

Masood Textile Mills

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Masood Textile Mills are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Masood Textile may actually be approaching a critical reversion point that can send shares even higher in April 2025.

ITTEFAQ Iron Industries

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ITTEFAQ Iron Industries are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak technical and fundamental indicators, ITTEFAQ Iron may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Masood Textile and ITTEFAQ Iron

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

The idea behind Masood Textile Mills and ITTEFAQ Iron Industries 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.