Correlation Between Unilever Pakistan and Pak Datacom

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

Diversification Opportunities for Unilever Pakistan and Pak Datacom

0.56

Correlation Coefficient

Unilever Pakistan  Pak Datacom

Very weak diversification

The 3 months correlation between Unilever and Pak is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Unilever Pakistan Foods and Pak Datacom in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pak Datacom 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 Pak Datacom. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pak Datacom has no effect on the direction of Unilever Pakistan i.e., Unilever Pakistan and Pak Datacom go up and down completely randomly.

Pair Corralation between Unilever Pakistan and Pak Datacom

Assuming the 90 days trading horizon Unilever Pakistan is expected to generate 15.41 times less return on investment than Pak Datacom. But when comparing it to its historical volatility, Unilever Pakistan Foods is 1.22 times less risky than Pak Datacom. It trades about 0.0 of its potential returns per unit of risk. Pak Datacom is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  4,713  in Pak Datacom on September 18, 2024 and sell it today you would earn a total of  3,877  from holding Pak Datacom or generate 82.26% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	67.4%
Values	Daily Returns

Unilever Pakistan Foods  vs.  Pak Datacom

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.

Pak Datacom

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Pak Datacom are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Pak Datacom sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Unilever Pakistan and Pak Datacom

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

The idea behind Unilever Pakistan Foods and Pak Datacom 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 Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.