Correlation Between Pakistan Petroleum and Altern Energy

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

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

Diversification Opportunities for Pakistan Petroleum and Altern Energy

-0.2

Correlation Coefficient

Pakistan Petroleum  Altern Energy

Good diversification

The 3 months correlation between Pakistan and Altern is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Pakistan Petroleum and Altern Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Altern Energy and Pakistan Petroleum 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 Petroleum are associated (or correlated) with Altern Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Altern Energy has no effect on the direction of Pakistan Petroleum i.e., Pakistan Petroleum and Altern Energy go up and down completely randomly.

Pair Corralation between Pakistan Petroleum and Altern Energy

Assuming the 90 days trading horizon Pakistan Petroleum is expected to under-perform the Altern Energy. But the stock apears to be less risky and, when comparing its historical volatility, Pakistan Petroleum is 1.86 times less risky than Altern Energy. The stock trades about -0.01 of its potential returns per unit of risk. The Altern Energy is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  1,207  in Altern Energy on December 24, 2024 and sell it today you would earn a total of  165.00  from holding Altern Energy or generate 13.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Pakistan Petroleum  vs.  Altern Energy

Pakistan Petroleum

Risk-Adjusted Performance

Very Weak

Over the last 90 days Pakistan Petroleum has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Pakistan Petroleum is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Altern Energy

Risk-Adjusted Performance

Modest

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

Pair Trading with Pakistan Petroleum and Altern Energy

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

The idea behind Pakistan Petroleum and Altern Energy 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.