Correlation Between Pakistan Reinsurance and Adamjee Insurance

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

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

Diversification Opportunities for Pakistan Reinsurance and Adamjee Insurance

0.88

Correlation Coefficient

Pakistan Reinsurance  Adamjee Insurance

Very poor diversification

The 3 months correlation between Pakistan and Adamjee is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Pakistan Reinsurance and Adamjee Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Adamjee Insurance and Pakistan Reinsurance 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 Reinsurance are associated (or correlated) with Adamjee Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Adamjee Insurance has no effect on the direction of Pakistan Reinsurance i.e., Pakistan Reinsurance and Adamjee Insurance go up and down completely randomly.

Pair Corralation between Pakistan Reinsurance and Adamjee Insurance

Assuming the 90 days trading horizon Pakistan Reinsurance is expected to under-perform the Adamjee Insurance. But the stock apears to be less risky and, when comparing its historical volatility, Pakistan Reinsurance is 1.19 times less risky than Adamjee Insurance. The stock trades about -0.05 of its potential returns per unit of risk. The Adamjee Insurance is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  5,393  in Adamjee Insurance on October 9, 2024 and sell it today you would lose (158.00) from holding Adamjee Insurance or give up 2.93% of portfolio value over 90 days.

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

Pakistan Reinsurance  vs.  Adamjee Insurance

Pakistan Reinsurance

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Pakistan Reinsurance are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Pakistan Reinsurance disclosed solid returns over the last few months and may actually be approaching a breakup point.

Adamjee Insurance

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Adamjee Insurance are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting basic indicators, Adamjee Insurance sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Pakistan Reinsurance and Adamjee Insurance

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

The idea behind Pakistan Reinsurance and Adamjee Insurance 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.