Correlation Between National Bank and Pakistan Tobacco

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

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

Diversification Opportunities for National Bank and Pakistan Tobacco

-0.13

Correlation Coefficient

National Bank  Pakistan Tobacco

Good diversification

The 3 months correlation between National and Pakistan is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding National Bank of and Pakistan Tobacco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pakistan Tobacco and National Bank 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 National Bank of are associated (or correlated) with Pakistan Tobacco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pakistan Tobacco has no effect on the direction of National Bank i.e., National Bank and Pakistan Tobacco go up and down completely randomly.

Pair Corralation between National Bank and Pakistan Tobacco

Assuming the 90 days trading horizon National Bank of is expected to under-perform the Pakistan Tobacco. In addition to that, National Bank is 2.42 times more volatile than Pakistan Tobacco. It trades about -0.19 of its total potential returns per unit of risk. Pakistan Tobacco is currently generating about -0.25 per unit of volatility. If you would invest  135,244  in Pakistan Tobacco on October 15, 2024 and sell it today you would lose (11,423) from holding Pakistan Tobacco or give up 8.45% of portfolio value over 90 days.

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

National Bank of  vs.  Pakistan Tobacco

National Bank

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days National Bank of has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest weak performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pakistan Tobacco

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Pakistan Tobacco are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Pakistan Tobacco sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with National Bank and Pakistan Tobacco

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

The idea behind National Bank of and Pakistan Tobacco 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.