Correlation Between Faysal Bank and Pakistan Tobacco
Can any of the company-specific risk be diversified away by investing in both Faysal Bank and Pakistan Tobacco 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 Faysal Bank and Pakistan Tobacco into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Faysal Bank and Pakistan Tobacco, you can compare the effects of market volatilities on Faysal Bank and Pakistan Tobacco 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 Faysal Bank with a short position of Pakistan Tobacco. Check out your portfolio center. Please also check ongoing floating volatility patterns of Faysal Bank and Pakistan Tobacco.
Diversification Opportunities for Faysal Bank and Pakistan Tobacco
0.63 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Faysal and Pakistan is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Faysal Bank and Pakistan Tobacco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pakistan Tobacco and Faysal Bank 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 Faysal Bank are associated (or correlated) with Pakistan Tobacco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pakistan Tobacco has no effect on the direction of Faysal Bank i.e., Faysal Bank and Pakistan Tobacco go up and down completely randomly.
Pair Corralation between Faysal Bank and Pakistan Tobacco
Assuming the 90 days trading horizon Faysal Bank is expected to under-perform the Pakistan Tobacco. In addition to that, Faysal Bank is 1.96 times more volatile than Pakistan Tobacco. It trades about -0.12 of its total potential returns per unit of risk. Pakistan Tobacco is currently generating about -0.11 per unit of volatility. If you would invest 124,989 in Pakistan Tobacco on August 30, 2024 and sell it today you would lose (4,981) from holding Pakistan Tobacco or give up 3.99% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Faysal Bank vs. Pakistan Tobacco
Performance |
| Timeline |
| Faysal Bank |
| Pakistan Tobacco |
Faysal Bank and Pakistan Tobacco Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Faysal Bank and Pakistan Tobacco
The main advantage of trading using opposite Faysal Bank and Pakistan Tobacco positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Faysal Bank position performs unexpectedly, Pakistan Tobacco 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 Pakistan Tobacco will offset losses from the drop in Pakistan Tobacco's long position.| Faysal Bank vs. Jubilee Life Insurance | Faysal Bank vs. EFU General Insurance | Faysal Bank vs. Wah Nobel Chemicals | Faysal Bank vs. Engro Polymer Chemicals |
| Pakistan Tobacco vs. Masood Textile Mills | Pakistan Tobacco vs. Fauji Foods | Pakistan Tobacco vs. KSB Pumps | Pakistan Tobacco 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.
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