Correlation Between Shadab Textile and Allied Bank

Can any of the company-specific risk be diversified away by investing in both Shadab Textile and Allied Bank 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 Shadab Textile and Allied Bank into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Shadab Textile Mills and Allied Bank, you can compare the effects of market volatilities on Shadab Textile and Allied Bank 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 Shadab Textile with a short position of Allied Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shadab Textile and Allied Bank.

Diversification Opportunities for Shadab Textile and Allied Bank

0.82

Correlation Coefficient

Shadab Textile  Allied Bank

Very poor diversification

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

Pair Corralation between Shadab Textile and Allied Bank

Assuming the 90 days trading horizon Shadab Textile Mills is expected to generate 1.69 times more return on investment than Allied Bank. However, Shadab Textile is 1.69 times more volatile than Allied Bank. It trades about 0.13 of its potential returns per unit of risk. Allied Bank is currently generating about 0.17 per unit of risk. If you would invest  1,650  in Shadab Textile Mills on October 26, 2024 and sell it today you would earn a total of  500.00  from holding Shadab Textile Mills or generate 30.3% return on investment over 90 days.

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

Shadab Textile Mills  vs.  Allied Bank

Shadab Textile Mills

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Shadab Textile Mills are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shadab Textile sustained solid returns over the last few months and may actually be approaching a breakup point.

Allied Bank

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Allied Bank are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Even with relatively conflicting basic indicators, Allied Bank reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shadab Textile and Allied Bank

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

The idea behind Shadab Textile Mills and Allied Bank 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.