Correlation Between Pakistan State and Engro Fertilizers

Can any of the company-specific risk be diversified away by investing in both Pakistan State and Engro Fertilizers 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 Engro Fertilizers 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 Engro Fertilizers, you can compare the effects of market volatilities on Pakistan State and Engro Fertilizers 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 Engro Fertilizers. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pakistan State and Engro Fertilizers.

Diversification Opportunities for Pakistan State and Engro Fertilizers

0.49

Correlation Coefficient

Pakistan State  Engro Fertilizers

Very weak diversification

The 3 months correlation between Pakistan and Engro is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Pakistan State Oil and Engro Fertilizers in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Engro Fertilizers 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 Engro Fertilizers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Engro Fertilizers has no effect on the direction of Pakistan State i.e., Pakistan State and Engro Fertilizers go up and down completely randomly.

Pair Corralation between Pakistan State and Engro Fertilizers

Assuming the 90 days trading horizon Pakistan State is expected to generate 4.34 times less return on investment than Engro Fertilizers. In addition to that, Pakistan State is 1.1 times more volatile than Engro Fertilizers. It trades about 0.03 of its total potential returns per unit of risk. Engro Fertilizers is currently generating about 0.12 per unit of volatility. If you would invest  20,451  in Engro Fertilizers on October 15, 2024 and sell it today you would earn a total of  1,406  from holding Engro Fertilizers or generate 6.87% return on investment over 90 days.

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

Pakistan State Oil  vs.  Engro Fertilizers

Pakistan State Oil

Risk-Adjusted Performance

25 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Pakistan State Oil are ranked lower than 25 (%) 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.

Engro Fertilizers

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Engro Fertilizers are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite weak technical and fundamental indicators, Engro Fertilizers disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Pakistan State and Engro Fertilizers

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

The idea behind Pakistan State Oil and Engro Fertilizers 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.