Correlation Between Masood Textile and Pakistan Tobacco

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

Diversification Opportunities for Masood Textile and Pakistan Tobacco

-0.77

Correlation Coefficient

Masood Textile  Pakistan Tobacco

Pay attention - limited upside

The 3 months correlation between Masood and Pakistan is -0.77. Overlapping area represents the amount of risk that can be diversified away by holding Masood Textile Mills and Pakistan Tobacco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pakistan Tobacco 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 Pakistan Tobacco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pakistan Tobacco has no effect on the direction of Masood Textile i.e., Masood Textile and Pakistan Tobacco go up and down completely randomly.

Pair Corralation between Masood Textile and Pakistan Tobacco

Assuming the 90 days trading horizon Masood Textile Mills is expected to under-perform the Pakistan Tobacco. In addition to that, Masood Textile is 1.57 times more volatile than Pakistan Tobacco. It trades about -0.05 of its total potential returns per unit of risk. Pakistan Tobacco is currently generating about 0.23 per unit of volatility. If you would invest  86,306  in Pakistan Tobacco on September 12, 2024 and sell it today you would earn a total of  40,973  from holding Pakistan Tobacco or generate 47.47% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	76.56%
Values	Daily Returns

Masood Textile Mills  vs.  Pakistan Tobacco

Masood Textile Mills

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Masood Textile Mills has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pakistan Tobacco

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Pakistan Tobacco are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Pakistan Tobacco sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Masood Textile and Pakistan Tobacco

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

The idea behind Masood Textile Mills and Pakistan Tobacco 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.