Correlation Between Thatta Cement and EFU General

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

By analyzing existing cross correlation between Thatta Cement and EFU General Insurance, you can compare the effects of market volatilities on Thatta Cement and EFU General 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 EFU General. Check out your portfolio center. Please also check ongoing floating volatility patterns of Thatta Cement and EFU General.

Diversification Opportunities for Thatta Cement and EFU General

0.73

Correlation Coefficient

Thatta Cement  EFU General

Poor diversification

The 3 months correlation between Thatta and EFU is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Thatta Cement and EFU General Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EFU General Insurance 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 EFU General. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EFU General Insurance has no effect on the direction of Thatta Cement i.e., Thatta Cement and EFU General go up and down completely randomly.

Pair Corralation between Thatta Cement and EFU General

Assuming the 90 days trading horizon Thatta Cement is expected to generate 1.29 times more return on investment than EFU General. However, Thatta Cement is 1.29 times more volatile than EFU General Insurance. It trades about 0.41 of its potential returns per unit of risk. EFU General Insurance is currently generating about 0.18 per unit of risk. If you would invest  5,107  in Thatta Cement on September 5, 2024 and sell it today you would earn a total of  11,800  from holding Thatta Cement or generate 231.06% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Thatta Cement  vs.  EFU General Insurance

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.

EFU General Insurance

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in EFU General Insurance are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting basic indicators, EFU General sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Thatta Cement and EFU General

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

The idea behind Thatta Cement and EFU General Insurance 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.