Correlation Between Thatta Cement and Bank of Punjab

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

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

Diversification Opportunities for Thatta Cement and Bank of Punjab

0.93

Correlation Coefficient

Thatta Cement  Bank of Punjab

Almost no diversification

The 3 months correlation between Thatta and Bank is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Thatta Cement and Bank of Punjab in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank of Punjab and Thatta Cement 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 Thatta Cement are associated (or correlated) with Bank of Punjab. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank of Punjab has no effect on the direction of Thatta Cement i.e., Thatta Cement and Bank of Punjab go up and down completely randomly.

Pair Corralation between Thatta Cement and Bank of Punjab

Assuming the 90 days trading horizon Thatta Cement is expected to generate 1.66 times more return on investment than Bank of Punjab. However, Thatta Cement is 1.66 times more volatile than Bank of Punjab. It trades about 0.31 of its potential returns per unit of risk. Bank of Punjab is currently generating about 0.14 per unit of risk. If you would invest  2,346  in Thatta Cement on September 18, 2024 and sell it today you would earn a total of  17,080  from holding Thatta Cement or generate 728.05% return on investment over 90 days.

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

Thatta Cement  vs.  Bank of Punjab

Thatta Cement

Risk-Adjusted Performance

32 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Thatta Cement are ranked lower than 32 (%) 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.

Bank of Punjab

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of Punjab are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Bank of Punjab reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Thatta Cement and Bank of Punjab

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

The idea behind Thatta Cement and Bank of Punjab 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.