Correlation Between Unilever Pakistan and Pakistan Tobacco

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

Diversification Opportunities for Unilever Pakistan and Pakistan Tobacco

0.89

Correlation Coefficient

Unilever Pakistan  Pakistan Tobacco

Very poor diversification

The 3 months correlation between Unilever and Pakistan is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Unilever Pakistan Foods and Pakistan Tobacco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pakistan Tobacco 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 Pakistan Tobacco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pakistan Tobacco has no effect on the direction of Unilever Pakistan i.e., Unilever Pakistan and Pakistan Tobacco go up and down completely randomly.

Pair Corralation between Unilever Pakistan and Pakistan Tobacco

Assuming the 90 days trading horizon Unilever Pakistan is expected to generate 2.0 times less return on investment than Pakistan Tobacco. But when comparing it to its historical volatility, Unilever Pakistan Foods is 2.39 times less risky than Pakistan Tobacco. It trades about 0.31 of its potential returns per unit of risk. Pakistan Tobacco is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  85,973  in Pakistan Tobacco on September 26, 2024 and sell it today you would earn a total of  48,109  from holding Pakistan Tobacco or generate 55.96% return on investment over 90 days.

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

Unilever Pakistan Foods  vs.  Pakistan Tobacco

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.

Pakistan Tobacco

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Pakistan Tobacco are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Pakistan Tobacco sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Unilever Pakistan and Pakistan Tobacco

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

The idea behind Unilever Pakistan Foods and Pakistan Tobacco 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.