Correlation Between Premier Insurance and Nestle Pakistan

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

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

Diversification Opportunities for Premier Insurance and Nestle Pakistan

-0.27

Correlation Coefficient

Premier Insurance  Nestle Pakistan

Very good diversification

The 3 months correlation between Premier and Nestle is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Premier Insurance and Nestle Pakistan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nestle Pakistan 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 Nestle Pakistan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nestle Pakistan has no effect on the direction of Premier Insurance i.e., Premier Insurance and Nestle Pakistan go up and down completely randomly.

Pair Corralation between Premier Insurance and Nestle Pakistan

Assuming the 90 days trading horizon Premier Insurance is expected to under-perform the Nestle Pakistan. In addition to that, Premier Insurance is 7.57 times more volatile than Nestle Pakistan. It trades about -0.14 of its total potential returns per unit of risk. Nestle Pakistan is currently generating about -0.07 per unit of volatility. If you would invest  739,500  in Nestle Pakistan on December 4, 2024 and sell it today you would lose (5,667) from holding Nestle Pakistan or give up 0.77% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	85.71%
Values	Daily Returns

Premier Insurance  vs.  Nestle Pakistan

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 weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Nestle Pakistan

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nestle Pakistan are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating basic indicators, Nestle Pakistan may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Premier Insurance and Nestle Pakistan

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

The idea behind Premier Insurance and Nestle Pakistan 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.