Correlation Between Pakistan State and Habib Metropolitan

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

Diversification Opportunities for Pakistan State and Habib Metropolitan

0.72

Correlation Coefficient

Pakistan State  Habib Metropolitan

Poor diversification

The 3 months correlation between Pakistan and Habib is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Pakistan State Oil and Habib Metropolitan Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Habib Metropolitan 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 Metropolitan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Habib Metropolitan Bank has no effect on the direction of Pakistan State i.e., Pakistan State and Habib Metropolitan go up and down completely randomly.

Pair Corralation between Pakistan State and Habib Metropolitan

Assuming the 90 days trading horizon Pakistan State Oil is expected to under-perform the Habib Metropolitan. But the stock apears to be less risky and, when comparing its historical volatility, Pakistan State Oil is 1.46 times less risky than Habib Metropolitan. The stock trades about -0.23 of its potential returns per unit of risk. The Habib Metropolitan Bank is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest  8,332  in Habib Metropolitan Bank on October 23, 2024 and sell it today you would earn a total of  1,591  from holding Habib Metropolitan Bank or generate 19.1% return on investment over 90 days.

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

Pakistan State Oil  vs.  Habib Metropolitan Bank

Pakistan State Oil

Risk-Adjusted Performance

26 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Pakistan State Oil are ranked lower than 26 (%) 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 Metropolitan Bank

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Habib Metropolitan Bank are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Habib Metropolitan reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Pakistan State and Habib Metropolitan

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

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