Correlation Between National Refinery and Engro

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

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

Diversification Opportunities for National Refinery and Engro

0.7

Correlation Coefficient

National Refinery  Engro

Poor diversification

The 3 months correlation between National and Engro is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding National Refinery and Engro in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Engro and National Refinery 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 Refinery are associated (or correlated) with Engro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Engro has no effect on the direction of National Refinery i.e., National Refinery and Engro go up and down completely randomly.

Pair Corralation between National Refinery and Engro

Assuming the 90 days trading horizon National Refinery is expected to generate 1.77 times more return on investment than Engro. However, National Refinery is 1.77 times more volatile than Engro. It trades about 0.09 of its potential returns per unit of risk. Engro is currently generating about 0.09 per unit of risk. If you would invest  21,257  in National Refinery on September 3, 2024 and sell it today you would earn a total of  2,966  from holding National Refinery or generate 13.95% return on investment over 90 days.

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

National Refinery  vs.  Engro

National Refinery

Risk-Adjusted Performance

7 of 100

Modest

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

Engro

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Engro are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite weak technical and fundamental indicators, Engro may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with National Refinery and Engro

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

The idea behind National Refinery and Engro 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.