Correlation Between Pakistan Hotel and Reliance Weaving

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

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

Diversification Opportunities for Pakistan Hotel and Reliance Weaving

0.86

Correlation Coefficient

Pakistan Hotel  Reliance Weaving

Very poor diversification

The 3 months correlation between Pakistan and Reliance is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Pakistan Hotel Developers and Reliance Weaving Mills in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Reliance Weaving Mills and Pakistan Hotel 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 Hotel Developers are associated (or correlated) with Reliance Weaving. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Reliance Weaving Mills has no effect on the direction of Pakistan Hotel i.e., Pakistan Hotel and Reliance Weaving go up and down completely randomly.

Pair Corralation between Pakistan Hotel and Reliance Weaving

Assuming the 90 days trading horizon Pakistan Hotel is expected to generate 1.38 times less return on investment than Reliance Weaving. In addition to that, Pakistan Hotel is 1.14 times more volatile than Reliance Weaving Mills. It trades about 0.21 of its total potential returns per unit of risk. Reliance Weaving Mills is currently generating about 0.33 per unit of volatility. If you would invest  8,779  in Reliance Weaving Mills on October 26, 2024 and sell it today you would earn a total of  5,516  from holding Reliance Weaving Mills or generate 62.83% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	97.56%
Values	Daily Returns

Pakistan Hotel Developers  vs.  Reliance Weaving Mills

Pakistan Hotel Developers

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Pakistan Hotel Developers are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Pakistan Hotel sustained solid returns over the last few months and may actually be approaching a breakup point.

Reliance Weaving Mills

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Reliance Weaving Mills are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Reliance Weaving sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Pakistan Hotel and Reliance Weaving

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

The idea behind Pakistan Hotel Developers and Reliance Weaving Mills 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.