Correlation Between Mughal Iron and Pakistan Hotel

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

Diversification Opportunities for Mughal Iron and Pakistan Hotel

0.58

Correlation Coefficient

Mughal Iron  Pakistan Hotel

Very weak diversification

The 3 months correlation between Mughal and Pakistan is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Mughal Iron Steel and Pakistan Hotel Developers in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pakistan Hotel Developers 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 Pakistan Hotel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pakistan Hotel Developers has no effect on the direction of Mughal Iron i.e., Mughal Iron and Pakistan Hotel go up and down completely randomly.

Pair Corralation between Mughal Iron and Pakistan Hotel

Assuming the 90 days trading horizon Mughal Iron Steel is expected to under-perform the Pakistan Hotel. But the stock apears to be less risky and, when comparing its historical volatility, Mughal Iron Steel is 5.3 times less risky than Pakistan Hotel. The stock trades about -0.04 of its potential returns per unit of risk. The Pakistan Hotel Developers is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  60,714  in Pakistan Hotel Developers on September 27, 2024 and sell it today you would lose (54,863) from holding Pakistan Hotel Developers or give up 90.36% of portfolio value over 90 days.

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

Mughal Iron Steel  vs.  Pakistan Hotel Developers

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.

Pakistan Hotel Developers

Risk-Adjusted Performance

3 of 100

Insignificant

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

Pair Trading with Mughal Iron and Pakistan Hotel

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

The idea behind Mughal Iron Steel and Pakistan Hotel Developers 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.