Correlation Between EGX 33 and Karachi 100

Can any of the company-specific risk be diversified away by investing in both EGX 33 and Karachi 100 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 EGX 33 and Karachi 100 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between EGX 33 Shariah and Karachi 100, you can compare the effects of market volatilities on EGX 33 and Karachi 100 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 EGX 33 with a short position of Karachi 100. Check out your portfolio center. Please also check ongoing floating volatility patterns of EGX 33 and Karachi 100.

Diversification Opportunities for EGX 33 and Karachi 100

0.84

Correlation Coefficient

EGX 33  Karachi 100

Very poor diversification

The 3 months correlation between EGX and Karachi is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding EGX 33 Shariah and Karachi 100 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Karachi 100 and EGX 33 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 EGX 33 Shariah are associated (or correlated) with Karachi 100. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Karachi 100 has no effect on the direction of EGX 33 i.e., EGX 33 and Karachi 100 go up and down completely randomly.

Pair Corralation between EGX 33 and Karachi 100

Assuming the 90 days trading horizon EGX 33 Shariah is expected to under-perform the Karachi 100. But the index apears to be less risky and, when comparing its historical volatility, EGX 33 Shariah is 1.74 times less risky than Karachi 100. The index trades about -0.09 of its potential returns per unit of risk. The Karachi 100 is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest  9,086,409  in Karachi 100 on August 30, 2024 and sell it today you would earn a total of  840,516  from holding Karachi 100 or generate 9.25% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	81.82%
Values	Daily Returns

EGX 33 Shariah  vs.  Karachi 100

Pair Trading with EGX 33 and Karachi 100

The main advantage of trading using opposite EGX 33 and Karachi 100 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if EGX 33 position performs unexpectedly, Karachi 100 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 Karachi 100 will offset losses from the drop in Karachi 100's long position.

The idea behind EGX 33 Shariah and Karachi 100 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.