Correlation Between National Bank and Pakistan Petroleum

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

Diversification Opportunities for National Bank and Pakistan Petroleum

-0.23

Correlation Coefficient

National Bank  Pakistan Petroleum

Very good diversification

The 3 months correlation between National and Pakistan is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding National Bank of and Pakistan Petroleum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pakistan Petroleum 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 Petroleum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pakistan Petroleum has no effect on the direction of National Bank i.e., National Bank and Pakistan Petroleum go up and down completely randomly.

Pair Corralation between National Bank and Pakistan Petroleum

Assuming the 90 days trading horizon National Bank of is expected to generate 1.02 times more return on investment than Pakistan Petroleum. However, National Bank is 1.02 times more volatile than Pakistan Petroleum. It trades about 0.19 of its potential returns per unit of risk. Pakistan Petroleum is currently generating about -0.01 per unit of risk. If you would invest  5,919  in National Bank of on December 29, 2024 and sell it today you would earn a total of  1,710  from holding National Bank of or generate 28.89% return on investment over 90 days.

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

National Bank of  vs.  Pakistan Petroleum

National Bank

Risk-Adjusted Performance

Good

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

Pakistan Petroleum

Risk-Adjusted Performance

Very Weak

Over the last 90 days Pakistan Petroleum has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Pakistan Petroleum is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with National Bank and Pakistan Petroleum

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

The idea behind National Bank of and Pakistan Petroleum 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.