Correlation Between Pak Datacom and Pakistan Aluminium

Can any of the company-specific risk be diversified away by investing in both Pak Datacom and Pakistan Aluminium 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 Pak Datacom and Pakistan Aluminium into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Pak Datacom and Pakistan Aluminium Beverage, you can compare the effects of market volatilities on Pak Datacom and Pakistan Aluminium 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 Pak Datacom with a short position of Pakistan Aluminium. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pak Datacom and Pakistan Aluminium.

Diversification Opportunities for Pak Datacom and Pakistan Aluminium

0.41

Correlation Coefficient

Pak Datacom  Pakistan Aluminium

Very weak diversification

The 3 months correlation between Pak and Pakistan is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Pak Datacom and Pakistan Aluminium Beverage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pakistan Aluminium and Pak Datacom 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 Pak Datacom are associated (or correlated) with Pakistan Aluminium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pakistan Aluminium has no effect on the direction of Pak Datacom i.e., Pak Datacom and Pakistan Aluminium go up and down completely randomly.

Pair Corralation between Pak Datacom and Pakistan Aluminium

Assuming the 90 days trading horizon Pak Datacom is expected to under-perform the Pakistan Aluminium. In addition to that, Pak Datacom is 1.92 times more volatile than Pakistan Aluminium Beverage. It trades about -0.12 of its total potential returns per unit of risk. Pakistan Aluminium Beverage is currently generating about -0.02 per unit of volatility. If you would invest  13,222  in Pakistan Aluminium Beverage on December 22, 2024 and sell it today you would lose (562.00) from holding Pakistan Aluminium Beverage or give up 4.25% of portfolio value over 90 days.

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

Pak Datacom  vs.  Pakistan Aluminium Beverage

Pak Datacom

Risk-Adjusted Performance

Very Weak

Over the last 90 days Pak Datacom has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

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 latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Pak Datacom and Pakistan Aluminium

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

The idea behind Pak Datacom and Pakistan Aluminium Beverage 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.