Correlation Between Oil and Bank Alfalah
Can any of the company-specific risk be diversified away by investing in both Oil and Bank Alfalah 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 Bank Alfalah 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 Bank Alfalah, you can compare the effects of market volatilities on Oil and Bank Alfalah 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 Bank Alfalah. Check out your portfolio center. Please also check ongoing floating volatility patterns of Oil and Bank Alfalah.
Diversification Opportunities for Oil and Bank Alfalah
0.85 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Oil and Bank is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Oil and Gas and Bank Alfalah in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank Alfalah 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 Bank Alfalah. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank Alfalah has no effect on the direction of Oil i.e., Oil and Bank Alfalah go up and down completely randomly.
Pair Corralation between Oil and Bank Alfalah
Assuming the 90 days trading horizon Oil is expected to generate 1.48 times less return on investment than Bank Alfalah. But when comparing it to its historical volatility, Oil and Gas is 1.07 times less risky than Bank Alfalah. It trades about 0.25 of its potential returns per unit of risk. Bank Alfalah is currently generating about 0.35 of returns per unit of risk over similar time horizon. If you would invest 6,552 in Bank Alfalah on September 1, 2024 and sell it today you would earn a total of 1,637 from holding Bank Alfalah or generate 24.98% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 95.65% |
| Values | Daily Returns |
Oil and Gas vs. Bank Alfalah
Performance |
| Timeline |
| Oil and Gas |
| Bank Alfalah |
Oil and Bank Alfalah Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Oil and Bank Alfalah
The main advantage of trading using opposite Oil and Bank Alfalah positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Oil position performs unexpectedly, Bank Alfalah 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 Bank Alfalah will offset losses from the drop in Bank Alfalah's long position.The idea behind Oil and Gas and Bank Alfalah 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.| Bank Alfalah vs. Unity Foods | Bank Alfalah vs. Matco Foods | Bank Alfalah vs. Oil and Gas | Bank Alfalah vs. MCB Investment Manag |
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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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