Correlation Between EFU General and Reliance Weaving
Can any of the company-specific risk be diversified away by investing in both EFU General and Reliance Weaving 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 Reliance Weaving 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 Reliance Weaving Mills, you can compare the effects of market volatilities on EFU General and Reliance Weaving 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 Reliance Weaving. Check out your portfolio center. Please also check ongoing floating volatility patterns of EFU General and Reliance Weaving.
Diversification Opportunities for EFU General and Reliance Weaving
0.34 | Correlation Coefficient |
Weak diversification
The 3 months correlation between EFU and Reliance is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding EFU General Insurance and Reliance Weaving Mills in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Reliance Weaving Mills 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 Reliance Weaving. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Reliance Weaving Mills has no effect on the direction of EFU General i.e., EFU General and Reliance Weaving go up and down completely randomly.
Pair Corralation between EFU General and Reliance Weaving
Assuming the 90 days trading horizon EFU General is expected to generate 1.16 times less return on investment than Reliance Weaving. But when comparing it to its historical volatility, EFU General Insurance is 1.61 times less risky than Reliance Weaving. It trades about 0.1 of its potential returns per unit of risk. Reliance Weaving Mills is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 7,900 in Reliance Weaving Mills on August 31, 2024 and sell it today you would earn a total of 4,522 from holding Reliance Weaving Mills or generate 57.24% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 84.71% |
| Values | Daily Returns |
EFU General Insurance vs. Reliance Weaving Mills
Performance |
| Timeline |
| EFU General Insurance |
| Reliance Weaving Mills |
EFU General and Reliance Weaving Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with EFU General and Reliance Weaving
The main advantage of trading using opposite EFU General and Reliance Weaving positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if EFU General position performs unexpectedly, Reliance Weaving 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 Reliance Weaving will offset losses from the drop in Reliance Weaving's long position.| EFU General vs. Habib Bank | EFU General vs. National Bank of | EFU General vs. United Bank | EFU General vs. MCB Bank |
| Reliance Weaving vs. Masood Textile Mills | Reliance Weaving vs. Fauji Foods | Reliance Weaving vs. KSB Pumps | Reliance Weaving 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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