Correlation Between Shadab Textile and Century Insurance

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

Diversification Opportunities for Shadab Textile and Century Insurance

0.82

Correlation Coefficient

Shadab Textile  Century Insurance

Very poor diversification

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

Pair Corralation between Shadab Textile and Century Insurance

Assuming the 90 days trading horizon Shadab Textile Mills is expected to generate 2.26 times more return on investment than Century Insurance. However, Shadab Textile is 2.26 times more volatile than Century Insurance. It trades about 0.13 of its potential returns per unit of risk. Century Insurance is currently generating about 0.21 per unit of risk. If you would invest  1,650  in Shadab Textile Mills on October 25, 2024 and sell it today you would earn a total of  501.00  from holding Shadab Textile Mills or generate 30.36% return on investment over 90 days.

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

Shadab Textile Mills  vs.  Century Insurance

Shadab Textile Mills

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Shadab Textile Mills are ranked lower than 10 (%) 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.

Century Insurance

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Century Insurance are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating basic indicators, Century Insurance sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shadab Textile and Century Insurance

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

The idea behind Shadab Textile Mills and Century Insurance 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.