Correlation Between Nasdaq and Pakistan Cables

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

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

Diversification Opportunities for Nasdaq and Pakistan Cables

0.28

Correlation Coefficient

Nasdaq  Pakistan Cables

Modest diversification

The 3 months correlation between Nasdaq and Pakistan is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq Inc and Pakistan Cables in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pakistan Cables and Nasdaq 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 Nasdaq Inc are associated (or correlated) with Pakistan Cables. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pakistan Cables has no effect on the direction of Nasdaq i.e., Nasdaq and Pakistan Cables go up and down completely randomly.

Pair Corralation between Nasdaq and Pakistan Cables

Given the investment horizon of 90 days Nasdaq is expected to generate 2.52 times less return on investment than Pakistan Cables. But when comparing it to its historical volatility, Nasdaq Inc is 3.6 times less risky than Pakistan Cables. It trades about 0.14 of its potential returns per unit of risk. Pakistan Cables is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  12,882  in Pakistan Cables on September 26, 2024 and sell it today you would earn a total of  2,717  from holding Pakistan Cables or generate 21.09% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	96.92%
Values	Daily Returns

Nasdaq Inc  vs.  Pakistan Cables

Nasdaq Inc

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nasdaq Inc are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, Nasdaq may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pakistan Cables

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Pakistan Cables are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Pakistan Cables sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Nasdaq and Pakistan Cables

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

The idea behind Nasdaq Inc and Pakistan Cables 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.