Correlation Between Pakistan Petroleum and Bestway Cement

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

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

Diversification Opportunities for Pakistan Petroleum and Bestway Cement

0.72

Correlation Coefficient

Pakistan Petroleum  Bestway Cement

Poor diversification

The 3 months correlation between Pakistan and Bestway is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Pakistan Petroleum and Bestway Cement in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bestway Cement 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 Bestway Cement. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bestway Cement has no effect on the direction of Pakistan Petroleum i.e., Pakistan Petroleum and Bestway Cement go up and down completely randomly.

Pair Corralation between Pakistan Petroleum and Bestway Cement

Assuming the 90 days trading horizon Pakistan Petroleum is expected to generate 1.13 times less return on investment than Bestway Cement. In addition to that, Pakistan Petroleum is 1.45 times more volatile than Bestway Cement. It trades about 0.1 of its total potential returns per unit of risk. Bestway Cement is currently generating about 0.16 per unit of volatility. If you would invest  9,815  in Bestway Cement on October 7, 2024 and sell it today you would earn a total of  26,498  from holding Bestway Cement or generate 269.97% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.59%
Values	Daily Returns

Pakistan Petroleum  vs.  Bestway Cement

Pakistan Petroleum

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Pakistan Petroleum are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Pakistan Petroleum reported solid returns over the last few months and may actually be approaching a breakup point.

Bestway Cement

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Bestway Cement are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting basic indicators, Bestway Cement sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Pakistan Petroleum and Bestway Cement

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

The idea behind Pakistan Petroleum and Bestway Cement 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.