Correlation Between Sindh Modaraba and Pakistan Petroleum

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

Diversification Opportunities for Sindh Modaraba and Pakistan Petroleum

0.69

Correlation Coefficient

Sindh Modaraba  Pakistan Petroleum

Poor diversification

The 3 months correlation between Sindh and Pakistan is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Sindh Modaraba Management and Pakistan Petroleum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pakistan Petroleum 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 Pakistan Petroleum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pakistan Petroleum has no effect on the direction of Sindh Modaraba i.e., Sindh Modaraba and Pakistan Petroleum go up and down completely randomly.

Pair Corralation between Sindh Modaraba and Pakistan Petroleum

Assuming the 90 days trading horizon Sindh Modaraba is expected to generate 12.04 times less return on investment than Pakistan Petroleum. But when comparing it to its historical volatility, Sindh Modaraba Management is 1.42 times less risky than Pakistan Petroleum. It trades about 0.02 of its potential returns per unit of risk. Pakistan Petroleum is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  15,007  in Pakistan Petroleum on October 9, 2024 and sell it today you would earn a total of  3,953  from holding Pakistan Petroleum or generate 26.34% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.0%
Values	Daily Returns

Sindh Modaraba Management  vs.  Pakistan Petroleum

Sindh Modaraba Management

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sindh Modaraba Management are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Sindh Modaraba may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pakistan Petroleum

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Pakistan Petroleum are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Even with relatively conflicting basic indicators, Pakistan Petroleum reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sindh Modaraba and Pakistan Petroleum

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

The idea behind Sindh Modaraba Management and Pakistan Petroleum 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.