Correlation Between Pakistan Aluminium and MCB Investment

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

Diversification Opportunities for Pakistan Aluminium and MCB Investment

0.86

Correlation Coefficient

Pakistan Aluminium  MCB Investment

Very poor diversification

The 3 months correlation between Pakistan and MCB is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Pakistan Aluminium Beverage and MCB Investment Manag in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MCB Investment Manag 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 MCB Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MCB Investment Manag has no effect on the direction of Pakistan Aluminium i.e., Pakistan Aluminium and MCB Investment go up and down completely randomly.

Pair Corralation between Pakistan Aluminium and MCB Investment

Assuming the 90 days trading horizon Pakistan Aluminium Beverage is expected to generate 1.27 times more return on investment than MCB Investment. However, Pakistan Aluminium is 1.27 times more volatile than MCB Investment Manag. It trades about 0.12 of its potential returns per unit of risk. MCB Investment Manag is currently generating about 0.04 per unit of risk. If you would invest  11,340  in Pakistan Aluminium Beverage on October 8, 2024 and sell it today you would earn a total of  993.00  from holding Pakistan Aluminium Beverage or generate 8.76% return on investment over 90 days.

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

Pakistan Aluminium Beverage  vs.  MCB Investment Manag

Pakistan Aluminium

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Pakistan Aluminium Beverage are ranked lower than 18 (%) 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.

MCB Investment Manag

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in MCB Investment Manag are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. Despite quite weak fundamental drivers, MCB Investment disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Pakistan Aluminium and MCB Investment

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

The idea behind Pakistan Aluminium Beverage and MCB Investment Manag 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.