Correlation Between Pakistan Aluminium and Ghani Chemical

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

Diversification Opportunities for Pakistan Aluminium and Ghani Chemical

-0.36

Correlation Coefficient

Pakistan Aluminium  Ghani Chemical

Very good diversification

The 3 months correlation between Pakistan and Ghani is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Pakistan Aluminium Beverage and Ghani Chemical Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ghani Chemical Industries 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 Ghani Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ghani Chemical Industries has no effect on the direction of Pakistan Aluminium i.e., Pakistan Aluminium and Ghani Chemical go up and down completely randomly.

Pair Corralation between Pakistan Aluminium and Ghani Chemical

Assuming the 90 days trading horizon Pakistan Aluminium Beverage is expected to under-perform the Ghani Chemical. But the stock apears to be less risky and, when comparing its historical volatility, Pakistan Aluminium Beverage is 1.93 times less risky than Ghani Chemical. The stock trades about -0.01 of its potential returns per unit of risk. The Ghani Chemical Industries is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  1,568  in Ghani Chemical Industries on December 24, 2024 and sell it today you would earn a total of  438.00  from holding Ghani Chemical Industries or generate 27.93% return on investment over 90 days.

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

Pakistan Aluminium Beverage  vs.  Ghani Chemical Industries

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.

Ghani Chemical Industries

Risk-Adjusted Performance

OK

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

Pair Trading with Pakistan Aluminium and Ghani Chemical

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

The idea behind Pakistan Aluminium Beverage and Ghani Chemical Industries 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.