Correlation Between Pakistan Reinsurance and Pakistan Aluminium

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

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

Diversification Opportunities for Pakistan Reinsurance and Pakistan Aluminium

0.6

Correlation Coefficient

Pakistan Reinsurance  Pakistan Aluminium

Poor diversification

The 3 months correlation between Pakistan and Pakistan is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Pakistan Reinsurance and Pakistan Aluminium Beverage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pakistan Aluminium 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 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 Pakistan Reinsurance i.e., Pakistan Reinsurance and Pakistan Aluminium go up and down completely randomly.

Pair Corralation between Pakistan Reinsurance and Pakistan Aluminium

Assuming the 90 days trading horizon Pakistan Reinsurance is expected to generate 0.59 times more return on investment than Pakistan Aluminium. However, Pakistan Reinsurance is 1.69 times less risky than Pakistan Aluminium. It trades about 0.04 of its potential returns per unit of risk. Pakistan Aluminium Beverage is currently generating about 0.02 per unit of risk. If you would invest  1,483  in Pakistan Reinsurance on December 26, 2024 and sell it today you would earn a total of  45.00  from holding Pakistan Reinsurance or generate 3.03% return on investment over 90 days.

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

Pakistan Reinsurance  vs.  Pakistan Aluminium Beverage

Pakistan Reinsurance

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Pakistan Reinsurance are ranked lower than 3 (%) 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.

Pakistan Aluminium

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Pakistan Aluminium Beverage are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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 Pakistan Reinsurance and Pakistan Aluminium

The main advantage of trading using opposite Pakistan Reinsurance and Pakistan Aluminium positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Pakistan Reinsurance 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 Pakistan Reinsurance 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.