Correlation Between Pakistan Tobacco and Shifa International

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

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

Diversification Opportunities for Pakistan Tobacco and Shifa International

-0.67

Correlation Coefficient

Pakistan Tobacco  Shifa International

Excellent diversification

The 3 months correlation between Pakistan and Shifa is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding Pakistan Tobacco and Shifa International Hospitals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shifa International 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 Shifa International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shifa International has no effect on the direction of Pakistan Tobacco i.e., Pakistan Tobacco and Shifa International go up and down completely randomly.

Pair Corralation between Pakistan Tobacco and Shifa International

Assuming the 90 days trading horizon Pakistan Tobacco is expected to under-perform the Shifa International. But the stock apears to be less risky and, when comparing its historical volatility, Pakistan Tobacco is 2.32 times less risky than Shifa International. The stock trades about -0.11 of its potential returns per unit of risk. The Shifa International Hospitals is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  39,056  in Shifa International Hospitals on December 24, 2024 and sell it today you would earn a total of  8,950  from holding Shifa International Hospitals or generate 22.92% return on investment over 90 days.

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

Pakistan Tobacco  vs.  Shifa International Hospitals

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.

Shifa International

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Shifa International Hospitals are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shifa International sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Pakistan Tobacco and Shifa International

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

The idea behind Pakistan Tobacco and Shifa International Hospitals 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.