Correlation Between Thatta Cement and Shell Pakistan

Can any of the company-specific risk be diversified away by investing in both Thatta Cement and Shell 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 Shell 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 Shell Pakistan, you can compare the effects of market volatilities on Thatta Cement and Shell 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 Shell Pakistan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Thatta Cement and Shell Pakistan.

Diversification Opportunities for Thatta Cement and Shell Pakistan

0.77

Correlation Coefficient

Thatta Cement  Shell Pakistan

Poor diversification

The 3 months correlation between Thatta and Shell is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Thatta Cement and Shell Pakistan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shell 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 Shell Pakistan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shell Pakistan has no effect on the direction of Thatta Cement i.e., Thatta Cement and Shell Pakistan go up and down completely randomly.

Pair Corralation between Thatta Cement and Shell Pakistan

Assuming the 90 days trading horizon Thatta Cement is expected to generate 1.77 times more return on investment than Shell Pakistan. However, Thatta Cement is 1.77 times more volatile than Shell Pakistan. It trades about 0.27 of its potential returns per unit of risk. Shell Pakistan is currently generating about 0.08 per unit of risk. If you would invest  1,652  in Thatta Cement on September 14, 2024 and sell it today you would earn a total of  18,681  from holding Thatta Cement or generate 1130.81% 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.  Shell Pakistan

Thatta Cement

Risk-Adjusted Performance

33 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Thatta Cement are ranked lower than 33 (%) 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.

Shell Pakistan

Risk-Adjusted Performance

27 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Shell Pakistan are ranked lower than 27 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shell Pakistan sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Thatta Cement and Shell Pakistan

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

The idea behind Thatta Cement and Shell 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.