Correlation Between Pakistan State and Habib Sugar

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

Diversification Opportunities for Pakistan State and Habib Sugar

0.89

Correlation Coefficient

Pakistan State  Habib Sugar

Very poor diversification

The 3 months correlation between Pakistan and Habib is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Pakistan State Oil and Habib Sugar Mills in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Habib Sugar Mills 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 Habib Sugar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Habib Sugar Mills has no effect on the direction of Pakistan State i.e., Pakistan State and Habib Sugar go up and down completely randomly.

Pair Corralation between Pakistan State and Habib Sugar

Assuming the 90 days trading horizon Pakistan State Oil is expected to generate 1.36 times more return on investment than Habib Sugar. However, Pakistan State is 1.36 times more volatile than Habib Sugar Mills. It trades about 0.3 of its potential returns per unit of risk. Habib Sugar Mills is currently generating about 0.12 per unit of risk. If you would invest  15,960  in Pakistan State Oil on September 30, 2024 and sell it today you would earn a total of  26,811  from holding Pakistan State Oil or generate 167.99% return on investment over 90 days.

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

Pakistan State Oil  vs.  Habib Sugar Mills

Pakistan State Oil

Risk-Adjusted Performance

37 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Pakistan State Oil are ranked lower than 37 (%) 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.

Habib Sugar Mills

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Habib Sugar Mills are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite quite weak fundamental drivers, Habib Sugar disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Pakistan State and Habib Sugar

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

The idea behind Pakistan State Oil and Habib Sugar Mills 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.