Correlation Between Millat Tractors and Engro

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

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

Diversification Opportunities for Millat Tractors and Engro

0.91

Correlation Coefficient

Millat Tractors  Engro

Almost no diversification

The 3 months correlation between Millat and Engro is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Millat Tractors and Engro in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Engro 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 Engro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Engro has no effect on the direction of Millat Tractors i.e., Millat Tractors and Engro go up and down completely randomly.

Pair Corralation between Millat Tractors and Engro

Assuming the 90 days trading horizon Millat Tractors is expected to generate 2.31 times less return on investment than Engro. But when comparing it to its historical volatility, Millat Tractors is 1.71 times less risky than Engro. It trades about 0.19 of its potential returns per unit of risk. Engro is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  30,943  in Engro on September 26, 2024 and sell it today you would earn a total of  11,846  from holding Engro or generate 38.28% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	97.67%
Values	Daily Returns

Millat Tractors  vs.  Engro

Millat Tractors

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Millat Tractors are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Millat Tractors reported solid returns over the last few months and may actually be approaching a breakup point.

Engro

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Engro are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite quite weak technical and fundamental indicators, Engro disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Millat Tractors and Engro

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

The idea behind Millat Tractors and Engro 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..