Correlation Between Allied Bank and K Electric
Can any of the company-specific risk be diversified away by investing in both Allied Bank and K Electric 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 Allied Bank and K Electric into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Allied Bank and K Electric, you can compare the effects of market volatilities on Allied Bank and K Electric 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 Allied Bank with a short position of K Electric. Check out your portfolio center. Please also check ongoing floating volatility patterns of Allied Bank and K Electric.
Diversification Opportunities for Allied Bank and K Electric
0.84 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Allied and KEL is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Allied Bank and K Electric in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on K Electric and Allied Bank 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 Allied Bank are associated (or correlated) with K Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of K Electric has no effect on the direction of Allied Bank i.e., Allied Bank and K Electric go up and down completely randomly.
Pair Corralation between Allied Bank and K Electric
Assuming the 90 days trading horizon Allied Bank is expected to generate 1.06 times less return on investment than K Electric. But when comparing it to its historical volatility, Allied Bank is 2.18 times less risky than K Electric. It trades about 0.15 of its potential returns per unit of risk. K Electric is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 235.00 in K Electric on September 13, 2024 and sell it today you would earn a total of 405.00 from holding K Electric or generate 172.34% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 95.45% |
| Values | Daily Returns |
Allied Bank vs. K Electric
Performance |
| Timeline |
| Allied Bank |
| K Electric |
Allied Bank and K Electric Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Allied Bank and K Electric
The main advantage of trading using opposite Allied Bank and K Electric positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Allied Bank position performs unexpectedly, K Electric 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 K Electric will offset losses from the drop in K Electric's long position.| Allied Bank vs. Oil and Gas | Allied Bank vs. Pakistan State Oil | Allied Bank vs. Pakistan Petroleum | Allied Bank vs. Fauji Fertilizer |
| K Electric vs. East West Insurance | K Electric vs. Premier Insurance | K Electric vs. Crescent Star Insurance | K Electric vs. Habib Insurance |
Check out your portfolio center.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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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