Correlation Between Pakistan State and Habib Bank

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

Diversification Opportunities for Pakistan State and Habib Bank

0.81

Correlation Coefficient

Pakistan State  Habib Bank

Very poor diversification

The 3 months correlation between Pakistan and Habib is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Pakistan State Oil and Habib Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Habib Bank 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 Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Habib Bank has no effect on the direction of Pakistan State i.e., Pakistan State and Habib Bank go up and down completely randomly.

Pair Corralation between Pakistan State and Habib Bank

Assuming the 90 days trading horizon Pakistan State Oil is expected to generate 1.06 times more return on investment than Habib Bank. However, Pakistan State is 1.06 times more volatile than Habib Bank. It trades about 0.4 of its potential returns per unit of risk. Habib Bank is currently generating about 0.28 per unit of risk. If you would invest  15,440  in Pakistan State Oil on September 5, 2024 and sell it today you would earn a total of  14,767  from holding Pakistan State Oil or generate 95.64% 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 Bank

Pakistan State Oil

Risk-Adjusted Performance

31 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Pakistan State Oil are ranked lower than 31 (%) 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 Bank

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Habib Bank are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Habib Bank reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Pakistan State and Habib Bank

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

The idea behind Pakistan State Oil and Habib Bank 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.