Correlation Between Silkbank and Thatta Cement

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

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

Diversification Opportunities for Silkbank and Thatta Cement

0.63

Correlation Coefficient

Silkbank  Thatta Cement

Poor diversification

The 3 months correlation between Silkbank and Thatta is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Silkbank and Thatta Cement in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Thatta Cement and Silkbank 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 Silkbank are associated (or correlated) with Thatta Cement. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Thatta Cement has no effect on the direction of Silkbank i.e., Silkbank and Thatta Cement go up and down completely randomly.

Pair Corralation between Silkbank and Thatta Cement

Assuming the 90 days trading horizon Silkbank is expected to generate 8.83 times less return on investment than Thatta Cement. In addition to that, Silkbank is 1.05 times more volatile than Thatta Cement. It trades about 0.02 of its total potential returns per unit of risk. Thatta Cement is currently generating about 0.21 per unit of volatility. If you would invest  1,131  in Thatta Cement on October 11, 2024 and sell it today you would earn a total of  20,608  from holding Thatta Cement or generate 1822.1% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.55%
Values	Daily Returns

Silkbank  vs.  Thatta Cement

Silkbank

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Silkbank are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Silkbank sustained solid returns over the last few months and may actually be approaching a breakup point.

Thatta Cement

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Thatta Cement are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. Despite quite weak fundamental indicators, Thatta Cement disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Silkbank and Thatta Cement

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

The idea behind Silkbank and Thatta Cement 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.