Correlation Between Pakistan Synthetics and Synthetic Products

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

By analyzing existing cross correlation between Pakistan Synthetics and Synthetic Products Enterprises, you can compare the effects of market volatilities on Pakistan Synthetics and Synthetic Products 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 Synthetic Products. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pakistan Synthetics and Synthetic Products.

Diversification Opportunities for Pakistan Synthetics and Synthetic Products

0.59

Correlation Coefficient

Pakistan Synthetics  Synthetic Products

Very weak diversification

The 3 months correlation between Pakistan and Synthetic is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Pakistan Synthetics and Synthetic Products Enterprises in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Synthetic Products 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 Synthetic Products. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Synthetic Products has no effect on the direction of Pakistan Synthetics i.e., Pakistan Synthetics and Synthetic Products go up and down completely randomly.

Pair Corralation between Pakistan Synthetics and Synthetic Products

Assuming the 90 days trading horizon Pakistan Synthetics is expected to generate 1.03 times more return on investment than Synthetic Products. However, Pakistan Synthetics is 1.03 times more volatile than Synthetic Products Enterprises. It trades about 0.31 of its potential returns per unit of risk. Synthetic Products Enterprises is currently generating about 0.05 per unit of risk. If you would invest  2,464  in Pakistan Synthetics on October 9, 2024 and sell it today you would earn a total of  1,725  from holding Pakistan Synthetics or generate 70.01% return on investment over 90 days.

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

Pakistan Synthetics  vs.  Synthetic Products Enterprises

Pakistan Synthetics

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Pakistan Synthetics are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting basic indicators, Pakistan Synthetics sustained solid returns over the last few months and may actually be approaching a breakup point.

Synthetic Products

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Synthetic Products Enterprises are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Synthetic Products sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Pakistan Synthetics and Synthetic Products

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

The idea behind Pakistan Synthetics and Synthetic Products Enterprises 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .