Correlation Between Pakistan State and Gul Ahmed

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

Diversification Opportunities for Pakistan State and Gul Ahmed

0.48

Correlation Coefficient

Pakistan State  Gul Ahmed

Very weak diversification

The 3 months correlation between Pakistan and Gul is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Pakistan State Oil and Gul Ahmed Textile in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gul Ahmed Textile 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 Gul Ahmed. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gul Ahmed Textile has no effect on the direction of Pakistan State i.e., Pakistan State and Gul Ahmed go up and down completely randomly.

Pair Corralation between Pakistan State and Gul Ahmed

Assuming the 90 days trading horizon Pakistan State Oil is expected to under-perform the Gul Ahmed. In addition to that, Pakistan State is 1.26 times more volatile than Gul Ahmed Textile. It trades about -0.02 of its total potential returns per unit of risk. Gul Ahmed Textile is currently generating about -0.02 per unit of volatility. If you would invest  2,562  in Gul Ahmed Textile on December 30, 2024 and sell it today you would lose (90.00) from holding Gul Ahmed Textile or give up 3.51% of portfolio value over 90 days.

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

Pakistan State Oil  vs.  Gul Ahmed Textile

Pakistan State Oil

Risk-Adjusted Performance

Very Weak

Over the last 90 days Pakistan State Oil has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Pakistan State is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Gul Ahmed Textile

Risk-Adjusted Performance

Very Weak

Over the last 90 days Gul Ahmed Textile has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Gul Ahmed 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 State and Gul Ahmed

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

The idea behind Pakistan State Oil and Gul Ahmed Textile 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.