Correlation Between Shell Pakistan and National Foods

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

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

Diversification Opportunities for Shell Pakistan and National Foods

-0.38

Correlation Coefficient

Shell Pakistan  National Foods

Very good diversification

The 3 months correlation between Shell and National is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Shell Pakistan and National Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Foods 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 National Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Foods has no effect on the direction of Shell Pakistan i.e., Shell Pakistan and National Foods go up and down completely randomly.

Pair Corralation between Shell Pakistan and National Foods

Assuming the 90 days trading horizon Shell Pakistan is expected to under-perform the National Foods. In addition to that, Shell Pakistan is 1.83 times more volatile than National Foods. It trades about -0.13 of its total potential returns per unit of risk. National Foods is currently generating about 0.14 per unit of volatility. If you would invest  18,838  in National Foods on December 22, 2024 and sell it today you would earn a total of  2,877  from holding National Foods or generate 15.27% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	76.19%
Values	Daily Returns

Shell Pakistan  vs.  National Foods

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.

National Foods

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in National Foods are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting basic indicators, National Foods sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shell Pakistan and National Foods

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

The idea behind Shell Pakistan and National Foods 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.