Correlation Between Pakistan Refinery and Ghani Chemical

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

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

Diversification Opportunities for Pakistan Refinery and Ghani Chemical

0.74

Correlation Coefficient

Pakistan Refinery  Ghani Chemical

Poor diversification

The 3 months correlation between Pakistan and Ghani is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Pakistan Refinery and Ghani Chemical Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ghani Chemical Industries 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 Ghani Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ghani Chemical Industries has no effect on the direction of Pakistan Refinery i.e., Pakistan Refinery and Ghani Chemical go up and down completely randomly.

Pair Corralation between Pakistan Refinery and Ghani Chemical

Assuming the 90 days trading horizon Pakistan Refinery is expected to generate 1.07 times less return on investment than Ghani Chemical. But when comparing it to its historical volatility, Pakistan Refinery is 1.23 times less risky than Ghani Chemical. It trades about 0.17 of its potential returns per unit of risk. Ghani Chemical Industries is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  1,091  in Ghani Chemical Industries on September 5, 2024 and sell it today you would earn a total of  359.00  from holding Ghani Chemical Industries or generate 32.91% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Pakistan Refinery  vs.  Ghani Chemical Industries

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.

Ghani Chemical Industries

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ghani Chemical Industries are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Ghani Chemical sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Pakistan Refinery and Ghani Chemical

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

The idea behind Pakistan Refinery and Ghani Chemical Industries 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.