Correlation Between Mughal Iron and Adamjee Insurance

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

By analyzing existing cross correlation between Mughal Iron Steel and Adamjee Insurance, you can compare the effects of market volatilities on Mughal Iron and Adamjee Insurance 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 Mughal Iron with a short position of Adamjee Insurance. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mughal Iron and Adamjee Insurance.

Diversification Opportunities for Mughal Iron and Adamjee Insurance

0.07

Correlation Coefficient

Mughal Iron  Adamjee Insurance

Significant diversification

The 3 months correlation between Mughal and Adamjee is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Mughal Iron Steel and Adamjee Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Adamjee Insurance and Mughal Iron 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 Mughal Iron Steel are associated (or correlated) with Adamjee Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Adamjee Insurance has no effect on the direction of Mughal Iron i.e., Mughal Iron and Adamjee Insurance go up and down completely randomly.

Pair Corralation between Mughal Iron and Adamjee Insurance

Assuming the 90 days trading horizon Mughal Iron is expected to generate 1.4 times less return on investment than Adamjee Insurance. But when comparing it to its historical volatility, Mughal Iron Steel is 1.09 times less risky than Adamjee Insurance. It trades about 0.23 of its potential returns per unit of risk. Adamjee Insurance is currently generating about 0.3 of returns per unit of risk over similar time horizon. If you would invest  3,948  in Adamjee Insurance on September 27, 2024 and sell it today you would earn a total of  1,043  from holding Adamjee Insurance or generate 26.42% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.65%
Values	Daily Returns

Mughal Iron Steel  vs.  Adamjee Insurance

Mughal Iron Steel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Mughal Iron Steel has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong technical indicators, Mughal Iron is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Adamjee Insurance

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Adamjee Insurance are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Adamjee Insurance sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Mughal Iron and Adamjee Insurance

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

The idea behind Mughal Iron Steel and Adamjee Insurance 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..