Correlation Between Sitara Chemical and Allied Bank

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

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

Diversification Opportunities for Sitara Chemical and Allied Bank

0.68

Correlation Coefficient

Sitara Chemical  Allied Bank

Poor diversification

The 3 months correlation between Sitara and Allied is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Sitara Chemical Industries and Allied Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allied Bank and Sitara Chemical 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 Sitara Chemical Industries are associated (or correlated) with Allied Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Allied Bank has no effect on the direction of Sitara Chemical i.e., Sitara Chemical and Allied Bank go up and down completely randomly.

Pair Corralation between Sitara Chemical and Allied Bank

Assuming the 90 days trading horizon Sitara Chemical is expected to generate 2.52 times less return on investment than Allied Bank. In addition to that, Sitara Chemical is 1.38 times more volatile than Allied Bank. It trades about 0.06 of its total potential returns per unit of risk. Allied Bank is currently generating about 0.2 per unit of volatility. If you would invest  10,405  in Allied Bank on September 16, 2024 and sell it today you would earn a total of  2,821  from holding Allied Bank or generate 27.11% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Sitara Chemical Industries  vs.  Allied Bank

Sitara Chemical Indu

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sitara Chemical Industries are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Sitara Chemical may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Allied Bank

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Allied Bank are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Allied Bank reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sitara Chemical and Allied Bank

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

The idea behind Sitara Chemical Industries and Allied Bank 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.