Correlation Between Masood Textile and Mughal Iron

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

Diversification Opportunities for Masood Textile and Mughal Iron

0.7

Correlation Coefficient

Masood Textile  Mughal Iron

Poor diversification

The 3 months correlation between Masood and Mughal is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Masood Textile Mills and Mughal Iron Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mughal Iron Steel 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 Mughal Iron. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mughal Iron Steel has no effect on the direction of Masood Textile i.e., Masood Textile and Mughal Iron go up and down completely randomly.

Pair Corralation between Masood Textile and Mughal Iron

Assuming the 90 days trading horizon Masood Textile Mills is expected to generate 1.2 times more return on investment than Mughal Iron. However, Masood Textile is 1.2 times more volatile than Mughal Iron Steel. It trades about 0.18 of its potential returns per unit of risk. Mughal Iron Steel is currently generating about 0.04 per unit of risk. If you would invest  4,022  in Masood Textile Mills on October 20, 2024 and sell it today you would earn a total of  1,602  from holding Masood Textile Mills or generate 39.83% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	85.94%
Values	Daily Returns

Masood Textile Mills  vs.  Mughal Iron Steel

Masood Textile Mills

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Masood Textile Mills are ranked lower than 13 (%) 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.

Mughal Iron Steel

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Mughal Iron Steel are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical indicators, Mughal Iron may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Masood Textile and Mughal Iron

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

The idea behind Masood Textile Mills and Mughal Iron Steel 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.