Correlation Between Mughal Iron and Thatta Cement

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

Diversification Opportunities for Mughal Iron and Thatta Cement

0.58

Correlation Coefficient

Mughal Iron  Thatta Cement

Very weak diversification

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

Pair Corralation between Mughal Iron and Thatta Cement

Assuming the 90 days trading horizon Mughal Iron Steel is expected to generate 0.73 times more return on investment than Thatta Cement. However, Mughal Iron Steel is 1.36 times less risky than Thatta Cement. It trades about -0.31 of its potential returns per unit of risk. Thatta Cement is currently generating about -0.35 per unit of risk. If you would invest  7,719  in Mughal Iron Steel on December 4, 2024 and sell it today you would lose (599.00) from holding Mughal Iron Steel or give up 7.76% 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.  Thatta Cement

Mughal Iron Steel

Risk-Adjusted Performance

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 latest weak performance, the Stock's technical indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Thatta Cement

Risk-Adjusted Performance

Very Weak

Over the last 90 days Thatta Cement has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent fundamental indicators, Thatta Cement is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Mughal Iron and Thatta Cement

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

The idea behind Mughal Iron Steel and Thatta Cement 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.