Correlation Between Pakistan Refinery and East West

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

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

Diversification Opportunities for Pakistan Refinery and East West

-0.34

Correlation Coefficient

Pakistan Refinery  East West

Very good diversification

The 3 months correlation between Pakistan and East is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Pakistan Refinery and East West Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on East West Insurance and Pakistan Refinery 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 Refinery are associated (or correlated) with East West. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of East West Insurance has no effect on the direction of Pakistan Refinery i.e., Pakistan Refinery and East West go up and down completely randomly.

Pair Corralation between Pakistan Refinery and East West

Assuming the 90 days trading horizon Pakistan Refinery is expected to generate 0.99 times more return on investment than East West. However, Pakistan Refinery is 1.01 times less risky than East West. It trades about 0.17 of its potential returns per unit of risk. East West Insurance is currently generating about -0.06 per unit of risk. If you would invest  2,244  in Pakistan Refinery on September 5, 2024 and sell it today you would earn a total of  700.00  from holding Pakistan Refinery or generate 31.19% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	76.19%
Values	Daily Returns

Pakistan Refinery  vs.  East West Insurance

Pakistan Refinery

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Pakistan Refinery are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Pakistan Refinery reported solid returns over the last few months and may actually be approaching a breakup point.

East West Insurance

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days East West Insurance has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Pakistan Refinery and East West

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

The idea behind Pakistan Refinery and East West Insurance 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..