Correlation Between Pak Datacom and Unilever Pakistan

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

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

Diversification Opportunities for Pak Datacom and Unilever Pakistan

0.7

Correlation Coefficient

Pak Datacom  Unilever Pakistan

Poor diversification

The 3 months correlation between Pak and Unilever is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Pak Datacom and Unilever Pakistan Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Unilever Pakistan Foods 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 Unilever Pakistan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Unilever Pakistan Foods has no effect on the direction of Pak Datacom i.e., Pak Datacom and Unilever Pakistan go up and down completely randomly.

Pair Corralation between Pak Datacom and Unilever Pakistan

Assuming the 90 days trading horizon Pak Datacom is expected to generate 4.87 times more return on investment than Unilever Pakistan. However, Pak Datacom is 4.87 times more volatile than Unilever Pakistan Foods. It trades about 0.53 of its potential returns per unit of risk. Unilever Pakistan Foods is currently generating about 0.13 per unit of risk. If you would invest  7,799  in Pak Datacom on October 11, 2024 and sell it today you would earn a total of  6,613  from holding Pak Datacom or generate 84.79% return on investment over 90 days.

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

Pak Datacom  vs.  Unilever Pakistan Foods

Pak Datacom

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Pak Datacom are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Pak Datacom sustained solid returns over the last few months and may actually be approaching a breakup point.

Unilever Pakistan Foods

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Unilever Pakistan Foods are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Unilever Pakistan sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Pak Datacom and Unilever Pakistan

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

The idea behind Pak Datacom and Unilever Pakistan Foods 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.