Correlation Between Orient Rental and Faysal Bank

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

Diversification Opportunities for Orient Rental and Faysal Bank

0.31

Correlation Coefficient

Orient Rental  Faysal Bank

Weak diversification

The 3 months correlation between Orient and Faysal is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Orient Rental Modaraba and Faysal Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Faysal 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 Faysal Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Faysal Bank has no effect on the direction of Orient Rental i.e., Orient Rental and Faysal Bank go up and down completely randomly.

Pair Corralation between Orient Rental and Faysal Bank

Assuming the 90 days trading horizon Orient Rental Modaraba is expected to generate 1.87 times more return on investment than Faysal Bank. However, Orient Rental is 1.87 times more volatile than Faysal Bank. It trades about 0.07 of its potential returns per unit of risk. Faysal Bank is currently generating about 0.12 per unit of risk. If you would invest  462.00  in Orient Rental Modaraba on September 30, 2024 and sell it today you would earn a total of  343.00  from holding Orient Rental Modaraba or generate 74.24% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	71.43%
Values	Daily Returns

Orient Rental Modaraba  vs.  Faysal Bank

Orient Rental Modaraba

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Orient Rental Modaraba are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Orient Rental reported solid returns over the last few months and may actually be approaching a breakup point.

Faysal Bank

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Faysal Bank are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Faysal Bank may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Orient Rental and Faysal Bank

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

The idea behind Orient Rental Modaraba and Faysal 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.