Correlation Between Pakistan Aluminium and Crescent Steel

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

Diversification Opportunities for Pakistan Aluminium and Crescent Steel

0.4

Correlation Coefficient

Pakistan Aluminium  Crescent Steel

Very weak diversification

The 3 months correlation between Pakistan and Crescent is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Pakistan Aluminium Beverage and Crescent Steel Allied in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Crescent Steel Allied 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 Crescent Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Crescent Steel Allied has no effect on the direction of Pakistan Aluminium i.e., Pakistan Aluminium and Crescent Steel go up and down completely randomly.

Pair Corralation between Pakistan Aluminium and Crescent Steel

Assuming the 90 days trading horizon Pakistan Aluminium Beverage is expected to generate 0.88 times more return on investment than Crescent Steel. However, Pakistan Aluminium Beverage is 1.13 times less risky than Crescent Steel. It trades about 0.44 of its potential returns per unit of risk. Crescent Steel Allied is currently generating about -0.02 per unit of risk. If you would invest  8,473  in Pakistan Aluminium Beverage on September 12, 2024 and sell it today you would earn a total of  3,651  from holding Pakistan Aluminium Beverage or generate 43.09% return on investment over 90 days.

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

Pakistan Aluminium Beverage  vs.  Crescent Steel Allied

Pakistan Aluminium

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Pakistan Aluminium Beverage are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Pakistan Aluminium sustained solid returns over the last few months and may actually be approaching a breakup point.

Crescent Steel Allied

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Crescent Steel Allied are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Crescent Steel sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Pakistan Aluminium and Crescent Steel

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

The idea behind Pakistan Aluminium Beverage and Crescent Steel Allied 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.