Correlation Between Thatta Cement and Pakistan Oilfields

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

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

Diversification Opportunities for Thatta Cement and Pakistan Oilfields

0.74

Correlation Coefficient

Thatta Cement  Pakistan Oilfields

Poor diversification

The 3 months correlation between Thatta and Pakistan is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Thatta Cement and Pakistan Oilfields in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pakistan Oilfields 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 Pakistan Oilfields. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pakistan Oilfields has no effect on the direction of Thatta Cement i.e., Thatta Cement and Pakistan Oilfields go up and down completely randomly.

Pair Corralation between Thatta Cement and Pakistan Oilfields

Assuming the 90 days trading horizon Thatta Cement is expected to generate 3.34 times more return on investment than Pakistan Oilfields. However, Thatta Cement is 3.34 times more volatile than Pakistan Oilfields. It trades about 0.29 of its potential returns per unit of risk. Pakistan Oilfields is currently generating about 0.12 per unit of risk. If you would invest  11,221  in Thatta Cement on October 9, 2024 and sell it today you would earn a total of  10,330  from holding Thatta Cement or generate 92.06% return on investment over 90 days.

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

Thatta Cement  vs.  Pakistan Oilfields

Thatta Cement

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Thatta Cement are ranked lower than 22 (%) 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.

Pakistan Oilfields

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Pakistan Oilfields are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Pakistan Oilfields is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Thatta Cement and Pakistan Oilfields

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

The idea behind Thatta Cement and Pakistan Oilfields 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.