Correlation Between Pakistan State and Unity Foods

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

Diversification Opportunities for Pakistan State and Unity Foods

0.82

Correlation Coefficient

Pakistan State  Unity Foods

Very poor diversification

The 3 months correlation between Pakistan and Unity is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Pakistan State Oil and Unity Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Unity Foods 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 Unity Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Unity Foods has no effect on the direction of Pakistan State i.e., Pakistan State and Unity Foods go up and down completely randomly.

Pair Corralation between Pakistan State and Unity Foods

Assuming the 90 days trading horizon Pakistan State Oil is expected to generate 1.0 times more return on investment than Unity Foods. However, Pakistan State Oil is 1.0 times less risky than Unity Foods. It trades about 0.12 of its potential returns per unit of risk. Unity Foods is currently generating about 0.09 per unit of risk. If you would invest  12,470  in Pakistan State Oil on September 26, 2024 and sell it today you would earn a total of  30,783  from holding Pakistan State Oil or generate 246.86% 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.  Unity Foods

Pakistan State Oil

Risk-Adjusted Performance

38 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Pakistan State Oil are ranked lower than 38 (%) 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.

Unity Foods

Risk-Adjusted Performance

13 of 100

Good

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

Pair Trading with Pakistan State and Unity Foods

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

The idea behind Pakistan State Oil and Unity Foods 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.

Check out your portfolio center.

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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.