Correlation Between Nestle Pakistan and Pak Datacom

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

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

Diversification Opportunities for Nestle Pakistan and Pak Datacom

0.47

Correlation Coefficient

Nestle Pakistan  Pak Datacom

Very weak diversification

The 3 months correlation between Nestle and Pak is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Nestle Pakistan and Pak Datacom in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pak Datacom 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 Pak Datacom. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pak Datacom has no effect on the direction of Nestle Pakistan i.e., Nestle Pakistan and Pak Datacom go up and down completely randomly.

Pair Corralation between Nestle Pakistan and Pak Datacom

Assuming the 90 days trading horizon Nestle Pakistan is expected to generate 0.55 times more return on investment than Pak Datacom. However, Nestle Pakistan is 1.8 times less risky than Pak Datacom. It trades about 0.07 of its potential returns per unit of risk. Pak Datacom is currently generating about 0.02 per unit of risk. If you would invest  695,377  in Nestle Pakistan on September 16, 2024 and sell it today you would earn a total of  46,932  from holding Nestle Pakistan or generate 6.75% return on investment over 90 days.

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

Nestle Pakistan  vs.  Pak Datacom

Nestle Pakistan

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Nestle Pakistan are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Nestle Pakistan may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pak Datacom

Risk-Adjusted Performance

1 of 100

Weak

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

Pair Trading with Nestle Pakistan and Pak Datacom

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

The idea behind Nestle Pakistan and Pak Datacom 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.