Correlation Between Oil and Pakistan National

Can any of the company-specific risk be diversified away by investing in both Oil and Pakistan National 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 Pakistan National 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 Pakistan National Shipping, you can compare the effects of market volatilities on Oil and Pakistan National 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 Pakistan National. Check out your portfolio center. Please also check ongoing floating volatility patterns of Oil and Pakistan National.

Diversification Opportunities for Oil and Pakistan National

0.9

Correlation Coefficient

Oil  Pakistan National

Almost no diversification

The 3 months correlation between Oil and Pakistan is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Oil and Gas and Pakistan National Shipping in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pakistan National 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 Pakistan National. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pakistan National has no effect on the direction of Oil i.e., Oil and Pakistan National go up and down completely randomly.

Pair Corralation between Oil and Pakistan National

Assuming the 90 days trading horizon Oil is expected to generate 2.0 times less return on investment than Pakistan National. But when comparing it to its historical volatility, Oil and Gas is 1.47 times less risky than Pakistan National. It trades about 0.25 of its potential returns per unit of risk. Pakistan National Shipping is currently generating about 0.34 of returns per unit of risk over similar time horizon. If you would invest  28,040  in Pakistan National Shipping on September 26, 2024 and sell it today you would earn a total of  22,107  from holding Pakistan National Shipping or generate 78.84% return on investment over 90 days.

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

Oil and Gas  vs.  Pakistan National Shipping

Oil and Gas

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Oil and Gas are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Oil sustained solid returns over the last few months and may actually be approaching a breakup point.

Pakistan National

Risk-Adjusted Performance

26 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Pakistan National Shipping are ranked lower than 26 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Pakistan National sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Oil and Pakistan National

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

The idea behind Oil and Gas and Pakistan National Shipping 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.

Check out your portfolio center.

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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.