Correlation Between Thatta Cement and Nestle Pakistan

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

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

Diversification Opportunities for Thatta Cement and Nestle Pakistan

0.13

Correlation Coefficient

Thatta Cement  Nestle Pakistan

Average diversification

The 3 months correlation between Thatta and Nestle is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Thatta Cement and Nestle Pakistan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nestle Pakistan 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 Nestle Pakistan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nestle Pakistan has no effect on the direction of Thatta Cement i.e., Thatta Cement and Nestle Pakistan go up and down completely randomly.

Pair Corralation between Thatta Cement and Nestle Pakistan

Assuming the 90 days trading horizon Thatta Cement is expected to generate 2.53 times more return on investment than Nestle Pakistan. However, Thatta Cement is 2.53 times more volatile than Nestle Pakistan. It trades about 0.0 of its potential returns per unit of risk. Nestle Pakistan is currently generating about 0.0 per unit of risk. If you would invest  22,057  in Thatta Cement on December 30, 2024 and sell it today you would lose (338.00) from holding Thatta Cement or give up 1.53% of portfolio value over 90 days.

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

Thatta Cement  vs.  Nestle Pakistan

Thatta Cement

Risk-Adjusted Performance

Very Weak

Over the last 90 days Thatta Cement has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent fundamental indicators, Thatta Cement is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Nestle Pakistan

Risk-Adjusted Performance

Very Weak

Over the last 90 days Nestle Pakistan has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Nestle Pakistan is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Thatta Cement and Nestle Pakistan

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

The idea behind Thatta Cement and Nestle Pakistan 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.