Correlation Between Pakistan State and Altern Energy

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

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

Diversification Opportunities for Pakistan State and Altern Energy

0.92

Correlation Coefficient

Pakistan State  Altern Energy

Almost no diversification

The 3 months correlation between Pakistan and Altern is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Pakistan State Oil and Altern Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Altern Energy and Pakistan State 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 State Oil are associated (or correlated) with Altern Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Altern Energy has no effect on the direction of Pakistan State i.e., Pakistan State and Altern Energy go up and down completely randomly.

Pair Corralation between Pakistan State and Altern Energy

Assuming the 90 days trading horizon Pakistan State Oil is expected to generate 1.09 times more return on investment than Altern Energy. However, Pakistan State is 1.09 times more volatile than Altern Energy. It trades about 0.16 of its potential returns per unit of risk. Altern Energy is currently generating about 0.1 per unit of risk. If you would invest  17,470  in Pakistan State Oil on October 9, 2024 and sell it today you would earn a total of  23,855  from holding Pakistan State Oil or generate 136.55% return on investment over 90 days.

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

Pakistan State Oil  vs.  Altern Energy

Pakistan State Oil

Risk-Adjusted Performance

30 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Pakistan State Oil are ranked lower than 30 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Pakistan State reported solid returns over the last few months and may actually be approaching a breakup point.

Altern Energy

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Altern Energy are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting basic indicators, Altern Energy sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Pakistan State and Altern Energy

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

The idea behind Pakistan State Oil and Altern Energy 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.

Check out your portfolio center.

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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.