Correlation Between Nestle Pakistan and Grays Leasing

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

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

Diversification Opportunities for Nestle Pakistan and Grays Leasing

0.17

Correlation Coefficient

Nestle Pakistan  Grays Leasing

Average diversification

The 3 months correlation between Nestle and Grays is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Nestle Pakistan and Grays Leasing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Grays Leasing and Nestle Pakistan 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 Nestle Pakistan are associated (or correlated) with Grays Leasing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Grays Leasing has no effect on the direction of Nestle Pakistan i.e., Nestle Pakistan and Grays Leasing go up and down completely randomly.

Pair Corralation between Nestle Pakistan and Grays Leasing

Assuming the 90 days trading horizon Nestle Pakistan is expected to generate 0.27 times more return on investment than Grays Leasing. However, Nestle Pakistan is 3.75 times less risky than Grays Leasing. It trades about 0.02 of its potential returns per unit of risk. Grays Leasing is currently generating about -0.14 per unit of risk. If you would invest  732,935  in Nestle Pakistan on December 23, 2024 and sell it today you would earn a total of  6,920  from holding Nestle Pakistan or generate 0.94% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	85.71%
Values	Daily Returns

Nestle Pakistan  vs.  Grays Leasing

Nestle Pakistan

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Nestle Pakistan are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Nestle Pakistan is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Grays Leasing

Risk-Adjusted Performance

Very Weak

Over the last 90 days Grays Leasing has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Nestle Pakistan and Grays Leasing

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

The idea behind Nestle Pakistan and Grays Leasing 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.