Correlation Between Engro and Hinopak Motors
Can any of the company-specific risk be diversified away by investing in both Engro and Hinopak Motors 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 Hinopak Motors into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Engro and Hinopak Motors, you can compare the effects of market volatilities on Engro and Hinopak Motors 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 Hinopak Motors. Check out your portfolio center. Please also check ongoing floating volatility patterns of Engro and Hinopak Motors.
Diversification Opportunities for Engro and Hinopak Motors
0.42 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Engro and Hinopak is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Engro and Hinopak Motors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hinopak Motors 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 Hinopak Motors. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hinopak Motors has no effect on the direction of Engro i.e., Engro and Hinopak Motors go up and down completely randomly.
Pair Corralation between Engro and Hinopak Motors
Assuming the 90 days trading horizon Engro is expected to generate 1.62 times less return on investment than Hinopak Motors. But when comparing it to its historical volatility, Engro is 1.26 times less risky than Hinopak Motors. It trades about 0.12 of its potential returns per unit of risk. Hinopak Motors is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest 25,920 in Hinopak Motors on August 30, 2024 and sell it today you would earn a total of 3,800 from holding Hinopak Motors or generate 14.66% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Engro vs. Hinopak Motors
Performance |
| Timeline |
| Engro |
| Hinopak Motors |
Engro and Hinopak Motors Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Engro and Hinopak Motors
The main advantage of trading using opposite Engro and Hinopak Motors positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Engro position performs unexpectedly, Hinopak Motors 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 Hinopak Motors will offset losses from the drop in Hinopak Motors' long position.The idea behind Engro and Hinopak Motors 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.| Hinopak Motors vs. Oil and Gas | Hinopak Motors vs. Pakistan State Oil | Hinopak Motors vs. Pakistan Petroleum | Hinopak Motors 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.
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