Correlation Between Sindh Modaraba and Al Ghazi

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

By analyzing existing cross correlation between Sindh Modaraba Management and Al Ghazi Tractors, you can compare the effects of market volatilities on Sindh Modaraba and Al Ghazi 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 Sindh Modaraba with a short position of Al Ghazi. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sindh Modaraba and Al Ghazi.

Diversification Opportunities for Sindh Modaraba and Al Ghazi

-0.05

Correlation Coefficient

Sindh Modaraba  Al Ghazi

Good diversification

The 3 months correlation between Sindh and AGTL is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Sindh Modaraba Management and Al Ghazi Tractors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Al Ghazi Tractors and Sindh Modaraba 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 Sindh Modaraba Management are associated (or correlated) with Al Ghazi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Al Ghazi Tractors has no effect on the direction of Sindh Modaraba i.e., Sindh Modaraba and Al Ghazi go up and down completely randomly.

Pair Corralation between Sindh Modaraba and Al Ghazi

Assuming the 90 days trading horizon Sindh Modaraba is expected to generate 11.24 times less return on investment than Al Ghazi. But when comparing it to its historical volatility, Sindh Modaraba Management is 1.18 times less risky than Al Ghazi. It trades about 0.02 of its potential returns per unit of risk. Al Ghazi Tractors is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  42,445  in Al Ghazi Tractors on December 2, 2024 and sell it today you would earn a total of  14,026  from holding Al Ghazi Tractors or generate 33.05% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	93.65%
Values	Daily Returns

Sindh Modaraba Management  vs.  Al Ghazi Tractors

Sindh Modaraba Management

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Sindh Modaraba Management are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Sindh Modaraba is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Al Ghazi Tractors

Risk-Adjusted Performance

Good

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

Pair Trading with Sindh Modaraba and Al Ghazi

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

The idea behind Sindh Modaraba Management and Al Ghazi Tractors 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.