Correlation Between Premier Insurance and Askari Bank

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

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

Diversification Opportunities for Premier Insurance and Askari Bank

-0.13

Correlation Coefficient

Premier Insurance  Askari Bank

Good diversification

The 3 months correlation between Premier and Askari is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Premier Insurance and Askari Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Askari Bank and Premier Insurance 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 Premier Insurance are associated (or correlated) with Askari Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Askari Bank has no effect on the direction of Premier Insurance i.e., Premier Insurance and Askari Bank go up and down completely randomly.

Pair Corralation between Premier Insurance and Askari Bank

Assuming the 90 days trading horizon Premier Insurance is expected to under-perform the Askari Bank. In addition to that, Premier Insurance is 1.4 times more volatile than Askari Bank. It trades about -0.01 of its total potential returns per unit of risk. Askari Bank is currently generating about 0.1 per unit of volatility. If you would invest  3,378  in Askari Bank on December 24, 2024 and sell it today you would earn a total of  501.00  from holding Askari Bank or generate 14.83% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	85.48%
Values	Daily Returns

Premier Insurance  vs.  Askari Bank

Premier Insurance

Risk-Adjusted Performance

Very Weak

Over the last 90 days Premier Insurance has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Premier Insurance is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Askari Bank

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Askari Bank are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting basic indicators, Askari Bank sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Premier Insurance and Askari Bank

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

The idea behind Premier Insurance and Askari Bank 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.