Correlation Between EFU General and Oil
Can any of the company-specific risk be diversified away by investing in both EFU General and Oil 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 EFU General and Oil into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between EFU General Insurance and Oil and Gas, you can compare the effects of market volatilities on EFU General and Oil 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 EFU General with a short position of Oil. Check out your portfolio center. Please also check ongoing floating volatility patterns of EFU General and Oil.
Diversification Opportunities for EFU General and Oil
0.65 | Correlation Coefficient |
Poor diversification
The 3 months correlation between EFU and Oil is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding EFU General Insurance and Oil and Gas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Oil and Gas and EFU General 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 EFU General Insurance are associated (or correlated) with Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Oil and Gas has no effect on the direction of EFU General i.e., EFU General and Oil go up and down completely randomly.
Pair Corralation between EFU General and Oil
Assuming the 90 days trading horizon EFU General Insurance is expected to generate 1.78 times more return on investment than Oil. However, EFU General is 1.78 times more volatile than Oil and Gas. It trades about 0.32 of its potential returns per unit of risk. Oil and Gas is currently generating about -0.03 per unit of risk. If you would invest 9,200 in EFU General Insurance on September 12, 2024 and sell it today you would earn a total of 3,000 from holding EFU General Insurance or generate 32.61% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
EFU General Insurance vs. Oil and Gas
Performance |
| Timeline |
| EFU General Insurance |
| Oil and Gas |
EFU General and Oil Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with EFU General and Oil
The main advantage of trading using opposite EFU General and Oil positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if EFU General position performs unexpectedly, Oil 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 Oil will offset losses from the drop in Oil's long position.| EFU General vs. Masood Textile Mills | EFU General vs. Fauji Foods | EFU General vs. KSB Pumps | EFU General vs. Mari Petroleum |
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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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