Correlation Between Pakistan Petroleum and Oil

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

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

Diversification Opportunities for Pakistan Petroleum and Oil

0.88

Correlation Coefficient

Pakistan Petroleum  Oil

Very poor diversification

The 3 months correlation between Pakistan and Oil is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Pakistan Petroleum and Oil and Gas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Oil and Gas 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 Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Oil and Gas has no effect on the direction of Pakistan Petroleum i.e., Pakistan Petroleum and Oil go up and down completely randomly.

Pair Corralation between Pakistan Petroleum and Oil

Assuming the 90 days trading horizon Pakistan Petroleum is expected to under-perform the Oil. In addition to that, Pakistan Petroleum is 1.15 times more volatile than Oil and Gas. It trades about -0.01 of its total potential returns per unit of risk. Oil and Gas is currently generating about 0.05 per unit of volatility. If you would invest  22,138  in Oil and Gas on December 30, 2024 and sell it today you would earn a total of  1,135  from holding Oil and Gas or generate 5.13% return on investment over 90 days.

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

Pakistan Petroleum  vs.  Oil and Gas

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.

Oil and Gas

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Oil and Gas are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Oil is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Pakistan Petroleum and Oil

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

The idea behind Pakistan Petroleum and Oil and Gas 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.