Correlation Between Pakistan Cables and Silkbank

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

By analyzing existing cross correlation between Pakistan Cables and Silkbank, you can compare the effects of market volatilities on Pakistan Cables and Silkbank 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 Cables with a short position of Silkbank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pakistan Cables and Silkbank.

Diversification Opportunities for Pakistan Cables and Silkbank

0.36

Correlation Coefficient

Pakistan Cables  Silkbank

Weak diversification

The 3 months correlation between Pakistan and Silkbank is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Pakistan Cables and Silkbank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Silkbank and Pakistan Cables 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 Cables are associated (or correlated) with Silkbank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Silkbank has no effect on the direction of Pakistan Cables i.e., Pakistan Cables and Silkbank go up and down completely randomly.

Pair Corralation between Pakistan Cables and Silkbank

Assuming the 90 days trading horizon Pakistan Cables is expected to generate 0.76 times more return on investment than Silkbank. However, Pakistan Cables is 1.31 times less risky than Silkbank. It trades about 0.09 of its potential returns per unit of risk. Silkbank is currently generating about 0.02 per unit of risk. If you would invest  7,112  in Pakistan Cables on October 9, 2024 and sell it today you would earn a total of  10,701  from holding Pakistan Cables or generate 150.46% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.55%
Values	Daily Returns

Pakistan Cables  vs.  Silkbank

Pakistan Cables

Risk-Adjusted Performance

14 of 100

Good

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

Silkbank

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Silkbank are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Silkbank sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Pakistan Cables and Silkbank

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

The idea behind Pakistan Cables and Silkbank 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..