Correlation Between Pakistan Aluminium and Thatta Cement

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

Diversification Opportunities for Pakistan Aluminium and Thatta Cement

0.8

Correlation Coefficient

Pakistan Aluminium  Thatta Cement

Very poor diversification

The 3 months correlation between Pakistan and Thatta is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Pakistan Aluminium Beverage and Thatta Cement in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Thatta Cement 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 Thatta Cement. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Thatta Cement has no effect on the direction of Pakistan Aluminium i.e., Pakistan Aluminium and Thatta Cement go up and down completely randomly.

Pair Corralation between Pakistan Aluminium and Thatta Cement

Assuming the 90 days trading horizon Pakistan Aluminium is expected to generate 1.26 times less return on investment than Thatta Cement. But when comparing it to its historical volatility, Pakistan Aluminium Beverage is 1.78 times less risky than Thatta Cement. It trades about 0.55 of its potential returns per unit of risk. Thatta Cement is currently generating about 0.39 of returns per unit of risk over similar time horizon. If you would invest  11,621  in Thatta Cement on September 16, 2024 and sell it today you would earn a total of  7,999  from holding Thatta Cement or generate 68.83% 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.  Thatta Cement

Pakistan Aluminium

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Pakistan Aluminium Beverage are ranked lower than 23 (%) 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.

Thatta Cement

Risk-Adjusted Performance

32 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Thatta Cement are ranked lower than 32 (%) of all global equities and portfolios over the last 90 days. Despite quite weak fundamental indicators, Thatta Cement disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Pakistan Aluminium and Thatta Cement

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

The idea behind Pakistan Aluminium Beverage and Thatta Cement 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.