Correlation Between Pakistan Tobacco and First Fidelity

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

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

Diversification Opportunities for Pakistan Tobacco and First Fidelity

-0.07

Correlation Coefficient

Pakistan Tobacco  First Fidelity

Good diversification

The 3 months correlation between Pakistan and First is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding Pakistan Tobacco and First Fidelity Leasing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Fidelity Leasing 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 First Fidelity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Fidelity Leasing has no effect on the direction of Pakistan Tobacco i.e., Pakistan Tobacco and First Fidelity go up and down completely randomly.

Pair Corralation between Pakistan Tobacco and First Fidelity

Assuming the 90 days trading horizon Pakistan Tobacco is expected to generate 1.64 times less return on investment than First Fidelity. But when comparing it to its historical volatility, Pakistan Tobacco is 2.19 times less risky than First Fidelity. It trades about 0.06 of its potential returns per unit of risk. First Fidelity Leasing is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  200.00  in First Fidelity Leasing on October 11, 2024 and sell it today you would earn a total of  32.00  from holding First Fidelity Leasing or generate 16.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	48.25%
Values	Daily Returns

Pakistan Tobacco  vs.  First Fidelity Leasing

Pakistan Tobacco

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Pakistan Tobacco are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Pakistan Tobacco sustained solid returns over the last few months and may actually be approaching a breakup point.

First Fidelity Leasing

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Pakistan Tobacco and First Fidelity

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

The idea behind Pakistan Tobacco and First Fidelity Leasing 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.