Correlation Between Murree Brewery and Shell Pakistan

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

By analyzing existing cross correlation between Murree Brewery and Shell Pakistan, you can compare the effects of market volatilities on Murree Brewery and Shell Pakistan 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 Murree Brewery with a short position of Shell Pakistan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Murree Brewery and Shell Pakistan.

Diversification Opportunities for Murree Brewery and Shell Pakistan

0.73

Correlation Coefficient

Murree Brewery  Shell Pakistan

Poor diversification

The 3 months correlation between Murree and Shell is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Murree Brewery and Shell Pakistan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shell Pakistan and Murree Brewery 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 Murree Brewery are associated (or correlated) with Shell Pakistan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shell Pakistan has no effect on the direction of Murree Brewery i.e., Murree Brewery and Shell Pakistan go up and down completely randomly.

Pair Corralation between Murree Brewery and Shell Pakistan

Assuming the 90 days trading horizon Murree Brewery is expected to generate 158.16 times less return on investment than Shell Pakistan. But when comparing it to its historical volatility, Murree Brewery is 3.72 times less risky than Shell Pakistan. It trades about 0.0 of its potential returns per unit of risk. Shell Pakistan is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  17,642  in Shell Pakistan on October 6, 2024 and sell it today you would earn a total of  3,745  from holding Shell Pakistan or generate 21.23% return on investment over 90 days.

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

Murree Brewery  vs.  Shell Pakistan

Murree Brewery

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Murree Brewery are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Despite quite fragile basic indicators, Murree Brewery disclosed solid returns over the last few months and may actually be approaching a breakup point.

Shell Pakistan

Risk-Adjusted Performance

15 of 100

Good

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

Pair Trading with Murree Brewery and Shell Pakistan

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

The idea behind Murree Brewery and Shell Pakistan 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.

Check out your portfolio center.

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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.