Correlation Between Pakistan Aluminium and International Steels

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

Diversification Opportunities for Pakistan Aluminium and International Steels

0.85
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Pakistan and International is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Pakistan Aluminium Beverage and International Steels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Steels 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 International Steels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Steels has no effect on the direction of Pakistan Aluminium i.e., Pakistan Aluminium and International Steels go up and down completely randomly.

Pair Corralation between Pakistan Aluminium and International Steels

Assuming the 90 days trading horizon Pakistan Aluminium Beverage is expected to generate 1.26 times more return on investment than International Steels. However, Pakistan Aluminium is 1.26 times more volatile than International Steels. It trades about 0.15 of its potential returns per unit of risk. International Steels is currently generating about 0.16 per unit of risk. If you would invest  8,440  in Pakistan Aluminium Beverage on October 25, 2024 and sell it today you would earn a total of  2,963  from holding Pakistan Aluminium Beverage or generate 35.11% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Pakistan Aluminium Beverage  vs.  International Steels

 Performance 
       Timeline  
Pakistan Aluminium 

Risk-Adjusted Performance

12 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Pakistan Aluminium Beverage are ranked lower than 12 (%) 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.
International Steels 

Risk-Adjusted Performance

12 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in International Steels are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, International Steels reported solid returns over the last few months and may actually be approaching a breakup point.

Pakistan Aluminium and International Steels Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Pakistan Aluminium and International Steels

The main advantage of trading using opposite Pakistan Aluminium and International Steels positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Pakistan Aluminium position performs unexpectedly, International Steels 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 International Steels will offset losses from the drop in International Steels' long position.
The idea behind Pakistan Aluminium Beverage and International Steels 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.

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