Correlation Between Pakistan Aluminium and Bank Alfalah

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

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

Diversification Opportunities for Pakistan Aluminium and Bank Alfalah

0.14

Correlation Coefficient

Pakistan Aluminium  Bank Alfalah

Average diversification

The 3 months correlation between Pakistan and Bank is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding Pakistan Aluminium Beverage and Bank Alfalah in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank Alfalah and Pakistan Aluminium 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 Pakistan Aluminium Beverage are associated (or correlated) with Bank Alfalah. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank Alfalah has no effect on the direction of Pakistan Aluminium i.e., Pakistan Aluminium and Bank Alfalah go up and down completely randomly.

Pair Corralation between Pakistan Aluminium and Bank Alfalah

Assuming the 90 days trading horizon Pakistan Aluminium Beverage is expected to generate 1.99 times more return on investment than Bank Alfalah. However, Pakistan Aluminium is 1.99 times more volatile than Bank Alfalah. It trades about 0.0 of its potential returns per unit of risk. Bank Alfalah is currently generating about -0.13 per unit of risk. If you would invest  12,509  in Pakistan Aluminium Beverage on December 31, 2024 and sell it today you would lose (264.00) from holding Pakistan Aluminium Beverage or give up 2.11% of portfolio value over 90 days.

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

Pakistan Aluminium Beverage  vs.  Bank Alfalah

Pakistan Aluminium

Risk-Adjusted Performance

Very Weak

Over the last 90 days Pakistan Aluminium Beverage has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Pakistan Aluminium is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Bank Alfalah

Risk-Adjusted Performance

Very Weak

Over the last 90 days Bank Alfalah has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Pakistan Aluminium and Bank Alfalah

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

The idea behind Pakistan Aluminium Beverage and Bank Alfalah 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.