Correlation Between Pakistan State and Habib Insurance

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

Diversification Opportunities for Pakistan State and Habib Insurance

0.54

Correlation Coefficient

Pakistan State  Habib Insurance

Very weak diversification

The 3 months correlation between Pakistan and Habib is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Pakistan State Oil and Habib Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Habib Insurance 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 Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Habib Insurance has no effect on the direction of Pakistan State i.e., Pakistan State and Habib Insurance go up and down completely randomly.

Pair Corralation between Pakistan State and Habib Insurance

Assuming the 90 days trading horizon Pakistan State Oil is expected to generate 0.71 times more return on investment than Habib Insurance. However, Pakistan State Oil is 1.41 times less risky than Habib Insurance. It trades about 0.4 of its potential returns per unit of risk. Habib Insurance is currently generating about 0.17 per unit of risk. If you would invest  15,733  in Pakistan State Oil on September 13, 2024 and sell it today you would earn a total of  15,263  from holding Pakistan State Oil or generate 97.01% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	87.3%
Values	Daily Returns

Pakistan State Oil  vs.  Habib Insurance

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 Insurance

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Habib Insurance are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Habib Insurance sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Pakistan State and Habib Insurance

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

The idea behind Pakistan State Oil and Habib Insurance 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.