Correlation Between Pakistan Tobacco and Unilever Pakistan

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

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

Diversification Opportunities for Pakistan Tobacco and Unilever Pakistan

0.83

Correlation Coefficient

Pakistan Tobacco  Unilever Pakistan

Very poor diversification

The 3 months correlation between Pakistan and Unilever is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Pakistan Tobacco and Unilever Pakistan Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Unilever Pakistan Foods 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 Unilever Pakistan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Unilever Pakistan Foods has no effect on the direction of Pakistan Tobacco i.e., Pakistan Tobacco and Unilever Pakistan go up and down completely randomly.

Pair Corralation between Pakistan Tobacco and Unilever Pakistan

Assuming the 90 days trading horizon Pakistan Tobacco is expected to generate 1.96 times more return on investment than Unilever Pakistan. However, Pakistan Tobacco is 1.96 times more volatile than Unilever Pakistan Foods. It trades about 0.06 of its potential returns per unit of risk. Unilever Pakistan Foods is currently generating about 0.02 per unit of risk. If you would invest  91,024  in Pakistan Tobacco on October 14, 2024 and sell it today you would earn a total of  32,797  from holding Pakistan Tobacco or generate 36.03% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.02%
Values	Daily Returns

Pakistan Tobacco  vs.  Unilever Pakistan Foods

Pakistan Tobacco

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Pakistan Tobacco are ranked lower than 12 (%) 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.

Unilever Pakistan Foods

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Unilever Pakistan Foods are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Unilever Pakistan sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Pakistan Tobacco and Unilever Pakistan

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

The idea behind Pakistan Tobacco and Unilever Pakistan Foods 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.