Correlation Between Bank of Punjab and Pakistan Tobacco
Can any of the company-specific risk be diversified away by investing in both Bank of Punjab 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 Bank of Punjab and Pakistan Tobacco into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Bank of Punjab and Pakistan Tobacco, you can compare the effects of market volatilities on Bank of Punjab 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 Bank of Punjab with a short position of Pakistan Tobacco. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of Punjab and Pakistan Tobacco.
Diversification Opportunities for Bank of Punjab and Pakistan Tobacco
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Bank and Pakistan is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Bank of Punjab and Pakistan Tobacco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pakistan Tobacco and Bank of Punjab 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 Bank of Punjab 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 Bank of Punjab i.e., Bank of Punjab and Pakistan Tobacco go up and down completely randomly.
Pair Corralation between Bank of Punjab and Pakistan Tobacco
Assuming the 90 days trading horizon Bank of Punjab is expected to generate 2.4 times more return on investment than Pakistan Tobacco. However, Bank of Punjab is 2.4 times more volatile than Pakistan Tobacco. It trades about 0.35 of its potential returns per unit of risk. Pakistan Tobacco is currently generating about -0.02 per unit of risk. If you would invest 550.00 in Bank of Punjab on August 27, 2024 and sell it today you would earn a total of 125.00 from holding Bank of Punjab or generate 22.73% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Bank of Punjab vs. Pakistan Tobacco
Performance |
| Timeline |
| Bank of Punjab |
| Pakistan Tobacco |
Bank of Punjab and Pakistan Tobacco Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bank of Punjab and Pakistan Tobacco
The main advantage of trading using opposite Bank of Punjab and Pakistan Tobacco positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of Punjab 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.| Bank of Punjab vs. National Bank of | Bank of Punjab vs. Meezan Bank | Bank of Punjab vs. Bank Al Habib | Bank of Punjab vs. Habib Metropolitan Bank |
| Pakistan Tobacco vs. EFU General Insurance | Pakistan Tobacco vs. Shaheen Insurance | Pakistan Tobacco vs. Faysal Bank | Pakistan Tobacco vs. Bank of Punjab |
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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.
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