Correlation Between Shifa International and Pakistan Reinsurance

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

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

Diversification Opportunities for Shifa International and Pakistan Reinsurance

0.9

Correlation Coefficient

Shifa International  Pakistan Reinsurance

Almost no diversification

The 3 months correlation between Shifa and Pakistan is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Shifa International Hospitals and Pakistan Reinsurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pakistan Reinsurance and Shifa International 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 Shifa International Hospitals are associated (or correlated) with Pakistan Reinsurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pakistan Reinsurance has no effect on the direction of Shifa International i.e., Shifa International and Pakistan Reinsurance go up and down completely randomly.

Pair Corralation between Shifa International and Pakistan Reinsurance

Assuming the 90 days trading horizon Shifa International Hospitals is expected to generate 1.62 times more return on investment than Pakistan Reinsurance. However, Shifa International is 1.62 times more volatile than Pakistan Reinsurance. It trades about -0.09 of its potential returns per unit of risk. Pakistan Reinsurance is currently generating about -0.3 per unit of risk. If you would invest  39,754  in Shifa International Hospitals on October 12, 2024 and sell it today you would lose (3,214) from holding Shifa International Hospitals or give up 8.08% of portfolio value over 90 days.

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

Shifa International Hospitals  vs.  Pakistan Reinsurance

Shifa International

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Shifa International Hospitals are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shifa International sustained solid returns over the last few months and may actually be approaching a breakup point.

Pakistan Reinsurance

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Pakistan Reinsurance are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite quite weak forward-looking signals, Pakistan Reinsurance disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shifa International and Pakistan Reinsurance

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

The idea behind Shifa International Hospitals and Pakistan Reinsurance 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.