Correlation Between Pakistan Tobacco and Ittehad Chemicals

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

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

Diversification Opportunities for Pakistan Tobacco and Ittehad Chemicals

0.14

Correlation Coefficient

Pakistan Tobacco  Ittehad Chemicals

Average diversification

The 3 months correlation between Pakistan and Ittehad is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding Pakistan Tobacco and Ittehad Chemicals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ittehad Chemicals 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 Ittehad Chemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ittehad Chemicals has no effect on the direction of Pakistan Tobacco i.e., Pakistan Tobacco and Ittehad Chemicals go up and down completely randomly.

Pair Corralation between Pakistan Tobacco and Ittehad Chemicals

Assuming the 90 days trading horizon Pakistan Tobacco is expected to under-perform the Ittehad Chemicals. But the stock apears to be less risky and, when comparing its historical volatility, Pakistan Tobacco is 1.79 times less risky than Ittehad Chemicals. The stock trades about -0.12 of its potential returns per unit of risk. The Ittehad Chemicals is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  6,852  in Ittehad Chemicals on December 24, 2024 and sell it today you would earn a total of  546.00  from holding Ittehad Chemicals or generate 7.97% return on investment over 90 days.

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

Pakistan Tobacco  vs.  Ittehad Chemicals

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.

Ittehad Chemicals

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Ittehad Chemicals are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Ittehad Chemicals may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Pakistan Tobacco and Ittehad Chemicals

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

The idea behind Pakistan Tobacco and Ittehad Chemicals 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.

Check out your portfolio center.

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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.