Correlation Between Security Investment and Pakistan Tobacco

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

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

Diversification Opportunities for Security Investment and Pakistan Tobacco

-0.35

Correlation Coefficient

Security Investment  Pakistan Tobacco

Very good diversification

The 3 months correlation between Security and Pakistan is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Security Investment Bank and Pakistan Tobacco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pakistan Tobacco and Security Investment 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 Security Investment Bank are associated (or correlated) with Pakistan Tobacco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pakistan Tobacco has no effect on the direction of Security Investment i.e., Security Investment and Pakistan Tobacco go up and down completely randomly.

Pair Corralation between Security Investment and Pakistan Tobacco

Assuming the 90 days trading horizon Security Investment Bank is expected to generate 3.98 times more return on investment than Pakistan Tobacco. However, Security Investment is 3.98 times more volatile than Pakistan Tobacco. It trades about 0.16 of its potential returns per unit of risk. Pakistan Tobacco is currently generating about -0.02 per unit of risk. If you would invest  500.00  in Security Investment Bank on December 4, 2024 and sell it today you would earn a total of  294.00  from holding Security Investment Bank or generate 58.8% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.36%
Values	Daily Returns

Security Investment Bank  vs.  Pakistan Tobacco

Security Investment Bank

Risk-Adjusted Performance

Good

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

Pakistan Tobacco

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Security Investment and Pakistan Tobacco

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

The idea behind Security Investment Bank and Pakistan Tobacco 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.

Check out your portfolio center.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.