Correlation Between United Insurance and Bank Alfalah

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

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

Diversification Opportunities for United Insurance and Bank Alfalah

-0.03

Correlation Coefficient

United Insurance  Bank Alfalah

Good diversification

The 3 months correlation between United and Bank is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding United Insurance and Bank Alfalah in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank Alfalah and United 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 United Insurance are associated (or correlated) with Bank Alfalah. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank Alfalah has no effect on the direction of United Insurance i.e., United Insurance and Bank Alfalah go up and down completely randomly.

Pair Corralation between United Insurance and Bank Alfalah

Assuming the 90 days trading horizon United Insurance is expected to generate 1.32 times less return on investment than Bank Alfalah. But when comparing it to its historical volatility, United Insurance is 1.02 times less risky than Bank Alfalah. It trades about 0.11 of its potential returns per unit of risk. Bank Alfalah is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  4,035  in Bank Alfalah on October 24, 2024 and sell it today you would earn a total of  4,370  from holding Bank Alfalah or generate 108.3% return on investment over 90 days.

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

United Insurance  vs.  Bank Alfalah

United Insurance

Risk-Adjusted Performance

0 of 100

Very Weak

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

Bank Alfalah

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Bank Alfalah are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Bank Alfalah sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with United Insurance and Bank Alfalah

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

The idea behind United Insurance and Bank Alfalah 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.

Check out your portfolio center.

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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.