Correlation Between Pakistan Aluminium and Mughal Iron

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

Diversification Opportunities for Pakistan Aluminium and Mughal Iron

0.74

Correlation Coefficient

Pakistan Aluminium  Mughal Iron

Poor diversification

The 3 months correlation between Pakistan and Mughal is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Pakistan Aluminium Beverage and Mughal Iron Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mughal Iron Steel 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 Mughal Iron. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mughal Iron Steel has no effect on the direction of Pakistan Aluminium i.e., Pakistan Aluminium and Mughal Iron go up and down completely randomly.

Pair Corralation between Pakistan Aluminium and Mughal Iron

Assuming the 90 days trading horizon Pakistan Aluminium Beverage is expected to under-perform the Mughal Iron. But the stock apears to be less risky and, when comparing its historical volatility, Pakistan Aluminium Beverage is 1.2 times less risky than Mughal Iron. The stock trades about -0.33 of its potential returns per unit of risk. The Mughal Iron Steel is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  8,089  in Mughal Iron Steel on October 24, 2024 and sell it today you would lose (55.00) from holding Mughal Iron Steel or give up 0.68% of portfolio value over 90 days.

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

Pakistan Aluminium Beverage  vs.  Mughal Iron Steel

Pakistan Aluminium

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Pakistan Aluminium Beverage are ranked lower than 11 (%) 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.

Mughal Iron Steel

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Pakistan Aluminium and Mughal Iron

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

The idea behind Pakistan Aluminium Beverage and Mughal Iron Steel 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.