Correlation Between Pakistan Synthetics and Engro Polymer

Can any of the company-specific risk be diversified away by investing in both Pakistan Synthetics and Engro Polymer 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 Synthetics and Engro Polymer into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Pakistan Synthetics and Engro Polymer Chemicals, you can compare the effects of market volatilities on Pakistan Synthetics and Engro Polymer 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 Synthetics with a short position of Engro Polymer. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pakistan Synthetics and Engro Polymer.

Diversification Opportunities for Pakistan Synthetics and Engro Polymer

0.14

Correlation Coefficient

Pakistan Synthetics  Engro Polymer

Average diversification

The 3 months correlation between Pakistan and Engro is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding Pakistan Synthetics and Engro Polymer Chemicals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Engro Polymer Chemicals and Pakistan Synthetics 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 Synthetics are associated (or correlated) with Engro Polymer. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Engro Polymer Chemicals has no effect on the direction of Pakistan Synthetics i.e., Pakistan Synthetics and Engro Polymer go up and down completely randomly.

Pair Corralation between Pakistan Synthetics and Engro Polymer

Assuming the 90 days trading horizon Pakistan Synthetics is expected to generate 2.09 times more return on investment than Engro Polymer. However, Pakistan Synthetics is 2.09 times more volatile than Engro Polymer Chemicals. It trades about 0.05 of its potential returns per unit of risk. Engro Polymer Chemicals is currently generating about 0.05 per unit of risk. If you would invest  3,831  in Pakistan Synthetics on December 24, 2024 and sell it today you would earn a total of  313.00  from holding Pakistan Synthetics or generate 8.17% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	96.77%
Values	Daily Returns

Pakistan Synthetics  vs.  Engro Polymer Chemicals

Pakistan Synthetics

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Pakistan Synthetics are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Pakistan Synthetics sustained solid returns over the last few months and may actually be approaching a breakup point.

Engro Polymer Chemicals

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Engro Polymer Chemicals are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Engro Polymer is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Pakistan Synthetics and Engro Polymer

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

The idea behind Pakistan Synthetics and Engro Polymer Chemicals 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.