Correlation Between Oil and Nishat Mills

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

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

Diversification Opportunities for Oil and Nishat Mills

0.84

Correlation Coefficient

Oil  Nishat Mills

Very poor diversification

The 3 months correlation between Oil and Nishat is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Oil and Gas and Nishat Mills in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nishat Mills and Oil 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 Oil and Gas are associated (or correlated) with Nishat Mills. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nishat Mills has no effect on the direction of Oil i.e., Oil and Nishat Mills go up and down completely randomly.

Pair Corralation between Oil and Nishat Mills

Assuming the 90 days trading horizon Oil is expected to generate 1.1 times less return on investment than Nishat Mills. But when comparing it to its historical volatility, Oil and Gas is 1.23 times less risky than Nishat Mills. It trades about 0.05 of its potential returns per unit of risk. Nishat Mills is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  10,473  in Nishat Mills on December 30, 2024 and sell it today you would earn a total of  548.00  from holding Nishat Mills or generate 5.23% return on investment over 90 days.

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

Oil and Gas  vs.  Nishat Mills

Oil and Gas

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Oil and Gas are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Oil is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Nishat Mills

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Nishat Mills are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Nishat Mills may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Oil and Nishat Mills

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

The idea behind Oil and Gas and Nishat Mills 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.