Correlation Between Masood Textile and Shell Pakistan

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

Diversification Opportunities for Masood Textile and Shell Pakistan

0.27

Correlation Coefficient

Masood Textile  Shell Pakistan

Modest diversification

The 3 months correlation between Masood and Shell is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Masood Textile Mills and Shell Pakistan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shell Pakistan 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 Shell Pakistan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shell Pakistan has no effect on the direction of Masood Textile i.e., Masood Textile and Shell Pakistan go up and down completely randomly.

Pair Corralation between Masood Textile and Shell Pakistan

Assuming the 90 days trading horizon Masood Textile is expected to generate 2.51 times less return on investment than Shell Pakistan. In addition to that, Masood Textile is 1.08 times more volatile than Shell Pakistan. It trades about 0.02 of its total potential returns per unit of risk. Shell Pakistan is currently generating about 0.04 per unit of volatility. If you would invest  17,400  in Shell Pakistan on December 4, 2024 and sell it today you would earn a total of  1,101  from holding Shell Pakistan or generate 6.33% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	86.89%
Values	Daily Returns

Masood Textile Mills  vs.  Shell Pakistan

Masood Textile Mills

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Masood Textile Mills are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Masood Textile is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Shell Pakistan

Risk-Adjusted Performance

Insignificant

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

Pair Trading with Masood Textile and Shell Pakistan

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

The idea behind Masood Textile Mills and Shell Pakistan 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.