Correlation Between Orient Rental and Ghani Gases

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

Diversification Opportunities for Orient Rental and Ghani Gases

0.6

Correlation Coefficient

Orient Rental  Ghani Gases

Poor diversification

The 3 months correlation between Orient and Ghani is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Orient Rental Modaraba and Ghani Gases in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ghani Gases 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 Ghani Gases. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ghani Gases has no effect on the direction of Orient Rental i.e., Orient Rental and Ghani Gases go up and down completely randomly.

Pair Corralation between Orient Rental and Ghani Gases

Assuming the 90 days trading horizon Orient Rental is expected to generate 16.15 times less return on investment than Ghani Gases. But when comparing it to its historical volatility, Orient Rental Modaraba is 2.49 times less risky than Ghani Gases. It trades about 0.04 of its potential returns per unit of risk. Ghani Gases is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest  1,220  in Ghani Gases on October 6, 2024 and sell it today you would earn a total of  370.00  from holding Ghani Gases or generate 30.33% return on investment over 90 days.

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

Orient Rental Modaraba  vs.  Ghani Gases

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.

Ghani Gases

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Ghani Gases are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Even with relatively conflicting basic indicators, Ghani Gases reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Orient Rental and Ghani Gases

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

The idea behind Orient Rental Modaraba and Ghani Gases 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.