Correlation Between Pakistan Tobacco and Alfalah Consumer

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

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

Diversification Opportunities for Pakistan Tobacco and Alfalah Consumer

0.04

Correlation Coefficient

Pakistan Tobacco  Alfalah Consumer

Significant diversification

The 3 months correlation between Pakistan and Alfalah is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Pakistan Tobacco and Alfalah Consumer in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alfalah Consumer and Pakistan Tobacco 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 Tobacco are associated (or correlated) with Alfalah Consumer. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alfalah Consumer has no effect on the direction of Pakistan Tobacco i.e., Pakistan Tobacco and Alfalah Consumer go up and down completely randomly.

Pair Corralation between Pakistan Tobacco and Alfalah Consumer

Assuming the 90 days trading horizon Pakistan Tobacco is expected to under-perform the Alfalah Consumer. But the stock apears to be less risky and, when comparing its historical volatility, Pakistan Tobacco is 2.34 times less risky than Alfalah Consumer. The stock trades about -0.1 of its potential returns per unit of risk. The Alfalah Consumer is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1,442  in Alfalah Consumer on December 25, 2024 and sell it today you would earn a total of  94.00  from holding Alfalah Consumer or generate 6.52% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	96.72%
Values	Daily Returns

Pakistan Tobacco  vs.  Alfalah Consumer

Pakistan Tobacco

Risk-Adjusted Performance

Very Weak

Over the last 90 days Pakistan Tobacco has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Alfalah Consumer

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Alfalah Consumer are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, Alfalah Consumer may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Pakistan Tobacco and Alfalah Consumer

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

The idea behind Pakistan Tobacco and Alfalah Consumer 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.