Correlation Between Millat Tractors and Bank Alfalah

Can any of the company-specific risk be diversified away by investing in both Millat Tractors and Bank Alfalah 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 Millat Tractors and Bank Alfalah into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Millat Tractors and Bank Alfalah, you can compare the effects of market volatilities on Millat Tractors and Bank Alfalah 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 Millat Tractors with a short position of Bank Alfalah. Check out your portfolio center. Please also check ongoing floating volatility patterns of Millat Tractors and Bank Alfalah.

Diversification Opportunities for Millat Tractors and Bank Alfalah

0.79

Correlation Coefficient

Millat Tractors  Bank Alfalah

Poor diversification

The 3 months correlation between Millat and Bank is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Millat Tractors and Bank Alfalah in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank Alfalah and Millat Tractors 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 Millat Tractors are associated (or correlated) with Bank Alfalah. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank Alfalah has no effect on the direction of Millat Tractors i.e., Millat Tractors and Bank Alfalah go up and down completely randomly.

Pair Corralation between Millat Tractors and Bank Alfalah

Assuming the 90 days trading horizon Millat Tractors is expected to generate 0.66 times more return on investment than Bank Alfalah. However, Millat Tractors is 1.52 times less risky than Bank Alfalah. It trades about 0.15 of its potential returns per unit of risk. Bank Alfalah is currently generating about -0.03 per unit of risk. If you would invest  57,168  in Millat Tractors on September 28, 2024 and sell it today you would earn a total of  4,024  from holding Millat Tractors or generate 7.04% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Millat Tractors  vs.  Bank Alfalah

Millat Tractors

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Millat Tractors are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Millat Tractors may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Bank Alfalah

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Bank Alfalah are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Bank Alfalah sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Millat Tractors and Bank Alfalah

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

The idea behind Millat Tractors and Bank Alfalah 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.