Correlation Between Pakistan Tobacco and EFU General

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

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

Diversification Opportunities for Pakistan Tobacco and EFU General

0.23

Correlation Coefficient

Pakistan Tobacco  EFU General

Modest diversification

The 3 months correlation between Pakistan and EFU is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Pakistan Tobacco and EFU General Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EFU General Insurance 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 EFU General. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EFU General Insurance has no effect on the direction of Pakistan Tobacco i.e., Pakistan Tobacco and EFU General go up and down completely randomly.

Pair Corralation between Pakistan Tobacco and EFU General

Assuming the 90 days trading horizon Pakistan Tobacco is expected to under-perform the EFU General. But the stock apears to be less risky and, when comparing its historical volatility, Pakistan Tobacco is 1.83 times less risky than EFU General. The stock trades about -0.2 of its potential returns per unit of risk. The EFU General Insurance is currently generating about -0.08 of returns per unit of risk over similar time horizon. If you would invest  11,800  in EFU General Insurance on October 26, 2024 and sell it today you would lose (662.00) from holding EFU General Insurance or give up 5.61% of portfolio value over 90 days.

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

Pakistan Tobacco  vs.  EFU General Insurance

Pakistan Tobacco

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pakistan Tobacco has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Pakistan Tobacco is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

EFU General Insurance

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in EFU General Insurance are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, EFU General sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Pakistan Tobacco and EFU General

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

The idea behind Pakistan Tobacco and EFU General 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 Transaction History module to view history of all your transactions and understand their impact on performance.