Correlation Between Packages and Allied Bank
Can any of the company-specific risk be diversified away by investing in both Packages and Allied Bank 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 Packages and Allied Bank into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Packages and Allied Bank, you can compare the effects of market volatilities on Packages and Allied Bank 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 Packages with a short position of Allied Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Packages and Allied Bank.
Diversification Opportunities for Packages and Allied Bank
0.84 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Packages and Allied is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Packages and Allied Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allied Bank and Packages 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 Packages are associated (or correlated) with Allied Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Allied Bank has no effect on the direction of Packages i.e., Packages and Allied Bank go up and down completely randomly.
Pair Corralation between Packages and Allied Bank
Assuming the 90 days trading horizon Packages is expected to generate 2.65 times less return on investment than Allied Bank. In addition to that, Packages is 1.28 times more volatile than Allied Bank. It trades about 0.05 of its total potential returns per unit of risk. Allied Bank is currently generating about 0.17 per unit of volatility. If you would invest 7,400 in Allied Bank on September 12, 2024 and sell it today you would earn a total of 6,577 from holding Allied Bank or generate 88.88% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 97.93% |
| Values | Daily Returns |
Packages vs. Allied Bank
Performance |
| Timeline |
| Packages |
| Allied Bank |
Packages and Allied Bank Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Packages and Allied Bank
The main advantage of trading using opposite Packages and Allied Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Packages position performs unexpectedly, Allied Bank 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 Allied Bank will offset losses from the drop in Allied Bank's long position.| Packages vs. Oil and Gas | Packages vs. Pakistan State Oil | Packages vs. Pakistan Petroleum | Packages vs. Fauji Fertilizer |
| Allied Bank vs. Oil and Gas | Allied Bank vs. Pakistan State Oil | Allied Bank vs. Pakistan Petroleum | Allied Bank vs. Fauji Fertilizer |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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