Correlation Between Nestle Pakistan and TPL Insurance

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

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

Diversification Opportunities for Nestle Pakistan and TPL Insurance

0.63

Correlation Coefficient

Nestle Pakistan  TPL Insurance

Poor diversification

The 3 months correlation between Nestle and TPL is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Nestle Pakistan and TPL Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TPL Insurance 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 TPL Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TPL Insurance has no effect on the direction of Nestle Pakistan i.e., Nestle Pakistan and TPL Insurance go up and down completely randomly.

Pair Corralation between Nestle Pakistan and TPL Insurance

Assuming the 90 days trading horizon Nestle Pakistan is expected to generate 1.86 times less return on investment than TPL Insurance. But when comparing it to its historical volatility, Nestle Pakistan is 1.9 times less risky than TPL Insurance. It trades about 0.07 of its potential returns per unit of risk. TPL Insurance is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  962.00  in TPL Insurance on September 15, 2024 and sell it today you would earn a total of  108.00  from holding TPL Insurance or generate 11.23% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Nestle Pakistan  vs.  TPL Insurance

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.

TPL Insurance

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in TPL Insurance are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, TPL Insurance sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Nestle Pakistan and TPL Insurance

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

The idea behind Nestle Pakistan and TPL Insurance 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.