Correlation Between Premier Insurance and Pakistan Aluminium

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

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

Diversification Opportunities for Premier Insurance and Pakistan Aluminium

-0.27

Correlation Coefficient

Premier Insurance  Pakistan Aluminium

Very good diversification

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

Pair Corralation between Premier Insurance and Pakistan Aluminium

Assuming the 90 days trading horizon Premier Insurance is expected to under-perform the Pakistan Aluminium. In addition to that, Premier Insurance is 1.31 times more volatile than Pakistan Aluminium Beverage. It trades about -0.02 of its total potential returns per unit of risk. Pakistan Aluminium Beverage is currently generating about 0.3 per unit of volatility. If you would invest  7,809  in Pakistan Aluminium Beverage on September 15, 2024 and sell it today you would earn a total of  5,341  from holding Pakistan Aluminium Beverage or generate 68.4% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	78.13%
Values	Daily Returns

Premier Insurance  vs.  Pakistan Aluminium Beverage

Premier Insurance

Risk-Adjusted Performance

0 of 100

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.

Pakistan Aluminium

Risk-Adjusted Performance

23 of 100

Solid

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

Pair Trading with Premier Insurance and Pakistan Aluminium

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

The idea behind Premier Insurance and Pakistan Aluminium Beverage 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 Transaction History module to view history of all your transactions and understand their impact on performance.