Correlation Between Pakistan Petroleum and Allied Bank
Can any of the company-specific risk be diversified away by investing in both Pakistan Petroleum 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 Pakistan Petroleum and Allied Bank into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Pakistan Petroleum and Allied Bank, you can compare the effects of market volatilities on Pakistan Petroleum 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 Pakistan Petroleum with a short position of Allied Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pakistan Petroleum and Allied Bank.
Diversification Opportunities for Pakistan Petroleum and Allied Bank
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Pakistan and Allied is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Pakistan Petroleum and Allied Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allied Bank and Pakistan Petroleum 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 Pakistan Petroleum 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 Pakistan Petroleum i.e., Pakistan Petroleum and Allied Bank go up and down completely randomly.
Pair Corralation between Pakistan Petroleum and Allied Bank
Assuming the 90 days trading horizon Pakistan Petroleum is expected to generate 1.23 times less return on investment than Allied Bank. In addition to that, Pakistan Petroleum is 1.59 times more volatile than Allied Bank. It trades about 0.09 of its total potential returns per unit of risk. Allied Bank is currently generating about 0.18 per unit of volatility. If you would invest 7,554 in Allied Bank on September 2, 2024 and sell it today you would earn a total of 6,821 from holding Allied Bank or generate 90.3% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 97.93% |
| Values | Daily Returns |
Pakistan Petroleum vs. Allied Bank
Performance |
| Timeline |
| Pakistan Petroleum |
| Allied Bank |
Pakistan Petroleum and Allied Bank Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Pakistan Petroleum and Allied Bank
The main advantage of trading using opposite Pakistan Petroleum and Allied Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Pakistan Petroleum 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.| Pakistan Petroleum vs. 786 Investment Limited | Pakistan Petroleum vs. JS Investments | Pakistan Petroleum vs. Air Link Communication | Pakistan Petroleum vs. Pakistan Telecommunication |
| Allied Bank vs. Wah Nobel Chemicals | Allied Bank vs. AKD Hospitality | Allied Bank vs. Adamjee Insurance | Allied Bank vs. Hi Tech Lubricants |
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 Bonds Directory module to find actively traded corporate debentures issued by US companies.
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