Correlation Between Pakistan Reinsurance and Ghandhara Automobile

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

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

Diversification Opportunities for Pakistan Reinsurance and Ghandhara Automobile

-0.19

Correlation Coefficient

Pakistan Reinsurance  Ghandhara Automobile

Good diversification

The 3 months correlation between Pakistan and Ghandhara is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding Pakistan Reinsurance and Ghandhara Automobile in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ghandhara Automobile 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 Ghandhara Automobile. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ghandhara Automobile has no effect on the direction of Pakistan Reinsurance i.e., Pakistan Reinsurance and Ghandhara Automobile go up and down completely randomly.

Pair Corralation between Pakistan Reinsurance and Ghandhara Automobile

Assuming the 90 days trading horizon Pakistan Reinsurance is expected to generate 11.97 times less return on investment than Ghandhara Automobile. But when comparing it to its historical volatility, Pakistan Reinsurance is 2.54 times less risky than Ghandhara Automobile. It trades about 0.05 of its potential returns per unit of risk. Ghandhara Automobile is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  28,585  in Ghandhara Automobile on December 25, 2024 and sell it today you would earn a total of  17,990  from holding Ghandhara Automobile or generate 62.94% return on investment over 90 days.

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

Pakistan Reinsurance  vs.  Ghandhara Automobile

Pakistan Reinsurance

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Pakistan Reinsurance are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent forward-looking signals, Pakistan Reinsurance is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Ghandhara Automobile

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Ghandhara Automobile are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Ghandhara Automobile reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Pakistan Reinsurance and Ghandhara Automobile

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

The idea behind Pakistan Reinsurance and Ghandhara Automobile 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.