Correlation Between Unilever Pakistan and Mughal Iron

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

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

Diversification Opportunities for Unilever Pakistan and Mughal Iron

-0.08

Correlation Coefficient

Unilever Pakistan  Mughal Iron

Good diversification

The 3 months correlation between Unilever and Mughal is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding Unilever Pakistan Foods and Mughal Iron Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mughal Iron Steel and Unilever Pakistan 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 Unilever Pakistan Foods are associated (or correlated) with Mughal Iron. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mughal Iron Steel has no effect on the direction of Unilever Pakistan i.e., Unilever Pakistan and Mughal Iron go up and down completely randomly.

Pair Corralation between Unilever Pakistan and Mughal Iron

Assuming the 90 days trading horizon Unilever Pakistan Foods is expected to generate 0.37 times more return on investment than Mughal Iron. However, Unilever Pakistan Foods is 2.68 times less risky than Mughal Iron. It trades about 0.15 of its potential returns per unit of risk. Mughal Iron Steel is currently generating about -0.04 per unit of risk. If you would invest  1,720,207  in Unilever Pakistan Foods on September 27, 2024 and sell it today you would earn a total of  356,534  from holding Unilever Pakistan Foods or generate 20.73% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.2%
Values	Daily Returns

Unilever Pakistan Foods  vs.  Mughal Iron Steel

Unilever Pakistan Foods

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Unilever Pakistan Foods are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Unilever Pakistan sustained solid returns over the last few months and may actually be approaching a breakup point.

Mughal Iron Steel

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Unilever Pakistan and Mughal Iron

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

The idea behind Unilever Pakistan Foods and Mughal Iron Steel 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.