Correlation Between Pakistan State and K Electric

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

Diversification Opportunities for Pakistan State and K Electric

0.66

Correlation Coefficient

Pakistan State  K Electric

Poor diversification

The 3 months correlation between Pakistan and KEL is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Pakistan State Oil and K Electric in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on K Electric 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 K Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of K Electric has no effect on the direction of Pakistan State i.e., Pakistan State and K Electric go up and down completely randomly.

Pair Corralation between Pakistan State and K Electric

Assuming the 90 days trading horizon Pakistan State Oil is expected to generate 0.96 times more return on investment than K Electric. However, Pakistan State Oil is 1.04 times less risky than K Electric. It trades about -0.02 of its potential returns per unit of risk. K Electric is currently generating about -0.11 per unit of risk. If you would invest  44,462  in Pakistan State Oil on December 30, 2024 and sell it today you would lose (2,386) from holding Pakistan State Oil or give up 5.37% of portfolio value over 90 days.

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

Pakistan State Oil  vs.  K Electric

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.

K Electric

Risk-Adjusted Performance

Very Weak

Over the last 90 days K Electric has generated negative risk-adjusted returns adding no value to investors with long positions. Even with weak performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in April 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with Pakistan State and K Electric

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

The idea behind Pakistan State Oil and K Electric 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.