Correlation Between TPL Insurance and Shell Pakistan

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

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

Diversification Opportunities for TPL Insurance and Shell Pakistan

0.48

Correlation Coefficient

TPL Insurance  Shell Pakistan

Very weak diversification

The 3 months correlation between TPL and Shell is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding TPL Insurance and Shell Pakistan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shell Pakistan and TPL Insurance 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 TPL Insurance 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 TPL Insurance i.e., TPL Insurance and Shell Pakistan go up and down completely randomly.

Pair Corralation between TPL Insurance and Shell Pakistan

Assuming the 90 days trading horizon TPL Insurance is expected to generate 5.05 times less return on investment than Shell Pakistan. In addition to that, TPL Insurance is 1.27 times more volatile than Shell Pakistan. It trades about 0.05 of its total potential returns per unit of risk. Shell Pakistan is currently generating about 0.34 per unit of volatility. If you would invest  14,037  in Shell Pakistan on September 13, 2024 and sell it today you would earn a total of  9,077  from holding Shell Pakistan or generate 64.66% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.41%
Values	Daily Returns

TPL Insurance  vs.  Shell Pakistan

TPL Insurance

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in TPL Insurance are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, TPL Insurance may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Shell Pakistan

Risk-Adjusted Performance

26 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Shell Pakistan are ranked lower than 26 (%) 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 TPL Insurance and Shell Pakistan

The main advantage of trading using opposite TPL Insurance and Shell Pakistan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if TPL Insurance 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 TPL Insurance 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.