Correlation Between Mughal Iron and Pakistan State

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

Diversification Opportunities for Mughal Iron and Pakistan State

0.25

Correlation Coefficient

Mughal Iron  Pakistan State

Modest diversification

The 3 months correlation between Mughal and Pakistan is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Mughal Iron Steel and Pakistan State Oil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pakistan State Oil 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 State. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pakistan State Oil has no effect on the direction of Mughal Iron i.e., Mughal Iron and Pakistan State go up and down completely randomly.

Pair Corralation between Mughal Iron and Pakistan State

Assuming the 90 days trading horizon Mughal Iron Steel is expected to under-perform the Pakistan State. But the stock apears to be less risky and, when comparing its historical volatility, Mughal Iron Steel is 1.38 times less risky than Pakistan State. The stock trades about -0.01 of its potential returns per unit of risk. The Pakistan State Oil is currently generating about 0.33 of returns per unit of risk over similar time horizon. If you would invest  30,534  in Pakistan State Oil on October 10, 2024 and sell it today you would earn a total of  10,105  from holding Pakistan State Oil or generate 33.09% return on investment over 90 days.

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

Mughal Iron Steel  vs.  Pakistan State Oil

Mughal Iron Steel

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Mughal Iron Steel are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. 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 State Oil

Risk-Adjusted Performance

28 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Pakistan State Oil are ranked lower than 28 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Pakistan State reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Mughal Iron and Pakistan State

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

The idea behind Mughal Iron Steel and Pakistan State Oil 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.