Correlation Between Shell Pakistan and Indus

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

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

Diversification Opportunities for Shell Pakistan and Indus

-0.74

Correlation Coefficient

Shell Pakistan  Indus

Pay attention - limited upside

The 3 months correlation between Shell and Indus is -0.74. Overlapping area represents the amount of risk that can be diversified away by holding Shell Pakistan and Indus Motor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Indus Motor and Shell Pakistan 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 Shell Pakistan are associated (or correlated) with Indus. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Indus Motor has no effect on the direction of Shell Pakistan i.e., Shell Pakistan and Indus go up and down completely randomly.

Pair Corralation between Shell Pakistan and Indus

Assuming the 90 days trading horizon Shell Pakistan is expected to under-perform the Indus. In addition to that, Shell Pakistan is 2.82 times more volatile than Indus Motor. It trades about -0.1 of its total potential returns per unit of risk. Indus Motor is currently generating about -0.03 per unit of volatility. If you would invest  211,315  in Indus Motor on December 30, 2024 and sell it today you would lose (4,880) from holding Indus Motor or give up 2.31% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	69.84%
Values	Daily Returns

Shell Pakistan  vs.  Indus Motor

Shell Pakistan

Risk-Adjusted Performance

Very Weak

Over the last 90 days Shell Pakistan has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Indus Motor

Risk-Adjusted Performance

Very Weak

Over the last 90 days Indus Motor has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Indus is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Shell Pakistan and Indus

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

The idea behind Shell Pakistan and Indus Motor 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.