Correlation Between Oil and Al Ghazi
Can any of the company-specific risk be diversified away by investing in both Oil and Al Ghazi 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 Oil and Al Ghazi into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Oil and Gas and Al Ghazi Tractors, you can compare the effects of market volatilities on Oil and Al Ghazi 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 Oil with a short position of Al Ghazi. Check out your portfolio center. Please also check ongoing floating volatility patterns of Oil and Al Ghazi.
Diversification Opportunities for Oil and Al Ghazi
Poor diversification
The 3 months correlation between Oil and AGTL is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Oil and Gas and Al Ghazi Tractors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Al Ghazi Tractors and Oil 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 Oil and Gas are associated (or correlated) with Al Ghazi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Al Ghazi Tractors has no effect on the direction of Oil i.e., Oil and Al Ghazi go up and down completely randomly.
Pair Corralation between Oil and Al Ghazi
Assuming the 90 days trading horizon Oil and Gas is expected to generate 2.0 times more return on investment than Al Ghazi. However, Oil is 2.0 times more volatile than Al Ghazi Tractors. It trades about 0.06 of its potential returns per unit of risk. Al Ghazi Tractors is currently generating about -0.45 per unit of risk. If you would invest 20,911 in Oil and Gas on November 28, 2024 and sell it today you would earn a total of 422.00 from holding Oil and Gas or generate 2.02% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.45% |
| Values | Daily Returns |
Oil and Gas vs. Al Ghazi Tractors
Performance |
| Timeline |
| Oil and Gas |
| Al Ghazi Tractors |
Oil and Al Ghazi Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Oil and Al Ghazi
The main advantage of trading using opposite Oil and Al Ghazi positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Oil position performs unexpectedly, Al Ghazi 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 Al Ghazi will offset losses from the drop in Al Ghazi's long position.| Oil vs. Pakistan Telecommunication | Oil vs. Ittehad Chemicals | Oil vs. Wah Nobel Chemicals | Oil vs. Invest Capital Investment |
| Al Ghazi vs. Honda Atlas Cars | Al Ghazi vs. Arpak International Investment | Al Ghazi vs. Ittehad Chemicals | Al Ghazi vs. Invest Capital Investment |
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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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