Correlation Between Orient Rental and Askari Bank

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

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

Diversification Opportunities for Orient Rental and Askari Bank

0.34

Correlation Coefficient

Orient Rental  Askari Bank

Weak diversification

The 3 months correlation between Orient and Askari is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Orient Rental Modaraba and Askari Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Askari Bank and Orient Rental 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 Orient Rental Modaraba are associated (or correlated) with Askari Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Askari Bank has no effect on the direction of Orient Rental i.e., Orient Rental and Askari Bank go up and down completely randomly.

Pair Corralation between Orient Rental and Askari Bank

Assuming the 90 days trading horizon Orient Rental is expected to generate 1.7 times less return on investment than Askari Bank. In addition to that, Orient Rental is 1.09 times more volatile than Askari Bank. It trades about 0.04 of its total potential returns per unit of risk. Askari Bank is currently generating about 0.08 per unit of volatility. If you would invest  3,518  in Askari Bank on December 23, 2024 and sell it today you would earn a total of  361.00  from holding Askari Bank or generate 10.26% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	96.83%
Values	Daily Returns

Orient Rental Modaraba  vs.  Askari Bank

Orient Rental Modaraba

Risk-Adjusted Performance

Insignificant

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

Askari Bank

Risk-Adjusted Performance

Modest

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

Pair Trading with Orient Rental and Askari Bank

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

The idea behind Orient Rental Modaraba and Askari Bank 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.