Correlation Between Sindh Modaraba and Ghandhara Automobile

Can any of the company-specific risk be diversified away by investing in both Sindh Modaraba and Ghandhara Automobile 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 Ghandhara Automobile 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 Ghandhara Automobile, you can compare the effects of market volatilities on Sindh Modaraba and Ghandhara Automobile 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 Ghandhara Automobile. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sindh Modaraba and Ghandhara Automobile.

Diversification Opportunities for Sindh Modaraba and Ghandhara Automobile

0.6

Correlation Coefficient

Sindh Modaraba  Ghandhara Automobile

Poor diversification

The 3 months correlation between Sindh and Ghandhara is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Sindh Modaraba Management and Ghandhara Automobile in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ghandhara Automobile 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 Ghandhara Automobile. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ghandhara Automobile has no effect on the direction of Sindh Modaraba i.e., Sindh Modaraba and Ghandhara Automobile go up and down completely randomly.

Pair Corralation between Sindh Modaraba and Ghandhara Automobile

Assuming the 90 days trading horizon Sindh Modaraba Management is expected to under-perform the Ghandhara Automobile. But the stock apears to be less risky and, when comparing its historical volatility, Sindh Modaraba Management is 1.46 times less risky than Ghandhara Automobile. The stock trades about -0.12 of its potential returns per unit of risk. The Ghandhara Automobile is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  30,259  in Ghandhara Automobile on October 8, 2024 and sell it today you would earn a total of  55.00  from holding Ghandhara Automobile or generate 0.18% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	89.47%
Values	Daily Returns

Sindh Modaraba Management  vs.  Ghandhara Automobile

Sindh Modaraba Management

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sindh Modaraba Management has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Ghandhara Automobile

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ghandhara Automobile are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Ghandhara Automobile reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sindh Modaraba and Ghandhara Automobile

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

The idea behind Sindh Modaraba Management and Ghandhara Automobile 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.