Correlation Between Universal Insurance and Pakistan Telecommunicatio

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

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

Diversification Opportunities for Universal Insurance and Pakistan Telecommunicatio

0.83

Correlation Coefficient

Universal Insurance  Pakistan Telecommunicatio

Very poor diversification

The 3 months correlation between Universal and Pakistan is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Universal Insurance and Pakistan Telecommunication in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pakistan Telecommunicatio and Universal 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 Universal Insurance are associated (or correlated) with Pakistan Telecommunicatio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pakistan Telecommunicatio has no effect on the direction of Universal Insurance i.e., Universal Insurance and Pakistan Telecommunicatio go up and down completely randomly.

Pair Corralation between Universal Insurance and Pakistan Telecommunicatio

Assuming the 90 days trading horizon Universal Insurance is expected to generate 2.5 times more return on investment than Pakistan Telecommunicatio. However, Universal Insurance is 2.5 times more volatile than Pakistan Telecommunication. It trades about -0.09 of its potential returns per unit of risk. Pakistan Telecommunication is currently generating about -0.24 per unit of risk. If you would invest  1,025  in Universal Insurance on October 23, 2024 and sell it today you would lose (125.00) from holding Universal Insurance or give up 12.2% of portfolio value over 90 days.

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

Universal Insurance  vs.  Pakistan Telecommunication

Universal Insurance

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Universal Insurance are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Universal Insurance sustained solid returns over the last few months and may actually be approaching a breakup point.

Pakistan Telecommunicatio

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Pakistan Telecommunication are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Pakistan Telecommunicatio reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Universal Insurance and Pakistan Telecommunicatio

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

The idea behind Universal Insurance and Pakistan Telecommunication 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.