Correlation Between Engro and Dost Steels
Can any of the company-specific risk be diversified away by investing in both Engro and Dost Steels 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 Engro and Dost Steels into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Engro and Dost Steels, you can compare the effects of market volatilities on Engro and Dost Steels 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 Engro with a short position of Dost Steels. Check out your portfolio center. Please also check ongoing floating volatility patterns of Engro and Dost Steels.
Diversification Opportunities for Engro and Dost Steels
0.38 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Engro and Dost is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Engro and Dost Steels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dost Steels and Engro 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 Engro are associated (or correlated) with Dost Steels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dost Steels has no effect on the direction of Engro i.e., Engro and Dost Steels go up and down completely randomly.
Pair Corralation between Engro and Dost Steels
Assuming the 90 days trading horizon Engro is expected to generate 1.42 times less return on investment than Dost Steels. But when comparing it to its historical volatility, Engro is 1.63 times less risky than Dost Steels. It trades about 0.22 of its potential returns per unit of risk. Dost Steels is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest 620.00 in Dost Steels on August 25, 2024 and sell it today you would earn a total of 77.00 from holding Dost Steels or generate 12.42% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Engro vs. Dost Steels
Performance |
| Timeline |
| Engro |
| Dost Steels |
Engro and Dost Steels Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Engro and Dost Steels
The main advantage of trading using opposite Engro and Dost Steels positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Engro position performs unexpectedly, Dost Steels 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 Dost Steels will offset losses from the drop in Dost Steels' long position.The idea behind Engro and Dost Steels 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.| Dost Steels vs. Oil and Gas | Dost Steels vs. Pakistan State Oil | Dost Steels vs. Pakistan Petroleum | Dost Steels vs. Engro |
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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.
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