Correlation Between Pakistan Tobacco and Honda Atlas

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

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

Diversification Opportunities for Pakistan Tobacco and Honda Atlas

0.59

Correlation Coefficient

Pakistan Tobacco  Honda Atlas

Very weak diversification

The 3 months correlation between Pakistan and Honda is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Pakistan Tobacco and Honda Atlas Cars in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Honda Atlas Cars 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 Honda Atlas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Honda Atlas Cars has no effect on the direction of Pakistan Tobacco i.e., Pakistan Tobacco and Honda Atlas go up and down completely randomly.

Pair Corralation between Pakistan Tobacco and Honda Atlas

Assuming the 90 days trading horizon Pakistan Tobacco is expected to under-perform the Honda Atlas. But the stock apears to be less risky and, when comparing its historical volatility, Pakistan Tobacco is 1.46 times less risky than Honda Atlas. The stock trades about -0.11 of its potential returns per unit of risk. The Honda Atlas Cars is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  30,794  in Honda Atlas Cars on December 24, 2024 and sell it today you would lose (985.00) from holding Honda Atlas Cars or give up 3.2% of portfolio value over 90 days.

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

Pakistan Tobacco  vs.  Honda Atlas Cars

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.

Honda Atlas Cars

Risk-Adjusted Performance

Very Weak

Over the last 90 days Honda Atlas Cars has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Honda Atlas 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 Honda Atlas

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

The idea behind Pakistan Tobacco and Honda Atlas Cars 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.