Correlation Between Pakistan Petroleum and K Electric

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

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

Diversification Opportunities for Pakistan Petroleum and K Electric

0.7

Correlation Coefficient

Pakistan Petroleum  K Electric

Poor diversification

The 3 months correlation between Pakistan and KEL is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Pakistan Petroleum and K Electric in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on K Electric 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 K Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of K Electric has no effect on the direction of Pakistan Petroleum i.e., Pakistan Petroleum and K Electric go up and down completely randomly.

Pair Corralation between Pakistan Petroleum and K Electric

Assuming the 90 days trading horizon Pakistan Petroleum is expected to generate 0.79 times more return on investment than K Electric. However, Pakistan Petroleum is 1.26 times less risky than K Electric. It trades about -0.01 of its potential returns per unit of risk. K Electric is currently generating about -0.11 per unit of risk. If you would invest  19,683  in Pakistan Petroleum on December 30, 2024 and sell it today you would lose (535.00) from holding Pakistan Petroleum or give up 2.72% of portfolio value over 90 days.

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

Pakistan Petroleum  vs.  K Electric

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 latest stock price agitation, may contribute to short-term losses for the retail investors.

K Electric

Risk-Adjusted Performance

Very Weak

Over the last 90 days K Electric has generated negative risk-adjusted returns adding no value to investors with long positions. Even with weak performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in April 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with Pakistan Petroleum and K Electric

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

The idea behind Pakistan Petroleum and K Electric 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.