Correlation Between Shaheen Insurance and Nestle Pakistan

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

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

Diversification Opportunities for Shaheen Insurance and Nestle Pakistan

-0.01

Correlation Coefficient

Shaheen Insurance  Nestle Pakistan

Good diversification

The 3 months correlation between Shaheen and Nestle is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding Shaheen Insurance and Nestle Pakistan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nestle Pakistan and Shaheen Insurance 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 Shaheen Insurance are associated (or correlated) with Nestle Pakistan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nestle Pakistan has no effect on the direction of Shaheen Insurance i.e., Shaheen Insurance and Nestle Pakistan go up and down completely randomly.

Pair Corralation between Shaheen Insurance and Nestle Pakistan

Assuming the 90 days trading horizon Shaheen Insurance is expected to generate 1.84 times more return on investment than Nestle Pakistan. However, Shaheen Insurance is 1.84 times more volatile than Nestle Pakistan. It trades about 0.16 of its potential returns per unit of risk. Nestle Pakistan is currently generating about 0.06 per unit of risk. If you would invest  465.00  in Shaheen Insurance on September 14, 2024 and sell it today you would earn a total of  144.00  from holding Shaheen Insurance or generate 30.97% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

Shaheen Insurance  vs.  Nestle Pakistan

Shaheen Insurance

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shaheen Insurance are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shaheen Insurance sustained solid returns over the last few months and may actually be approaching a breakup point.

Nestle Pakistan

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Nestle Pakistan are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting basic indicators, Nestle Pakistan may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Shaheen Insurance and Nestle Pakistan

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

The idea behind Shaheen Insurance and Nestle Pakistan 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.