Correlation Between Stellar and Pakistan Synthetics

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

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

Diversification Opportunities for Stellar and Pakistan Synthetics

0.65

Correlation Coefficient

Stellar  Pakistan Synthetics

Poor diversification

The 3 months correlation between Stellar and Pakistan is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Stellar and Pakistan Synthetics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pakistan Synthetics and Stellar 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 Stellar are associated (or correlated) with Pakistan Synthetics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pakistan Synthetics has no effect on the direction of Stellar i.e., Stellar and Pakistan Synthetics go up and down completely randomly.

Pair Corralation between Stellar and Pakistan Synthetics

Assuming the 90 days trading horizon Stellar is expected to generate 2.41 times more return on investment than Pakistan Synthetics. However, Stellar is 2.41 times more volatile than Pakistan Synthetics. It trades about 0.12 of its potential returns per unit of risk. Pakistan Synthetics is currently generating about 0.05 per unit of risk. If you would invest  10.00  in Stellar on October 24, 2024 and sell it today you would earn a total of  34.00  from holding Stellar or generate 340.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	55.43%
Values	Daily Returns

Stellar  vs.  Pakistan Synthetics

Stellar

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Stellar are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady primary indicators, Stellar exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pakistan Synthetics

Risk-Adjusted Performance

15 of 100

Good

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

Pair Trading with Stellar and Pakistan Synthetics

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

The idea behind Stellar and Pakistan Synthetics 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.