Correlation Between Engro Polymer and National Foods
Can any of the company-specific risk be diversified away by investing in both Engro Polymer and National Foods 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 Polymer and National Foods into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Engro Polymer Chemicals and National Foods, you can compare the effects of market volatilities on Engro Polymer and National Foods 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 Polymer with a short position of National Foods. Check out your portfolio center. Please also check ongoing floating volatility patterns of Engro Polymer and National Foods.
Diversification Opportunities for Engro Polymer and National Foods
0.61 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Engro and National is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Engro Polymer Chemicals and National Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Foods and Engro Polymer 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 Polymer Chemicals are associated (or correlated) with National Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Foods has no effect on the direction of Engro Polymer i.e., Engro Polymer and National Foods go up and down completely randomly.
Pair Corralation between Engro Polymer and National Foods
Assuming the 90 days trading horizon Engro Polymer Chemicals is expected to under-perform the National Foods. But the stock apears to be less risky and, when comparing its historical volatility, Engro Polymer Chemicals is 1.16 times less risky than National Foods. The stock trades about -0.03 of its potential returns per unit of risk. The National Foods is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 12,691 in National Foods on August 26, 2024 and sell it today you would earn a total of 4,687 from holding National Foods or generate 36.93% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Engro Polymer Chemicals vs. National Foods
Performance |
| Timeline |
| Engro Polymer Chemicals |
| National Foods |
Engro Polymer and National Foods Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Engro Polymer and National Foods
The main advantage of trading using opposite Engro Polymer and National Foods positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Engro Polymer position performs unexpectedly, National Foods 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 National Foods will offset losses from the drop in National Foods' long position.| Engro Polymer vs. Masood Textile Mills | Engro Polymer vs. Fauji Foods | Engro Polymer vs. KSB Pumps | Engro Polymer vs. Mari Petroleum |
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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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.
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