Correlation Between Pakistan State and EFU General
Can any of the company-specific risk be diversified away by investing in both Pakistan State and EFU General 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 State and EFU General into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Pakistan State Oil and EFU General Insurance, you can compare the effects of market volatilities on Pakistan State and EFU General 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 State with a short position of EFU General. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pakistan State and EFU General.
Diversification Opportunities for Pakistan State and EFU General
0.71 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Pakistan and EFU is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Pakistan State Oil and EFU General Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EFU General Insurance and Pakistan State 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 State Oil are associated (or correlated) with EFU General. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EFU General Insurance has no effect on the direction of Pakistan State i.e., Pakistan State and EFU General go up and down completely randomly.
Pair Corralation between Pakistan State and EFU General
Assuming the 90 days trading horizon Pakistan State is expected to generate 1.52 times less return on investment than EFU General. But when comparing it to its historical volatility, Pakistan State Oil is 1.3 times less risky than EFU General. It trades about 0.44 of its potential returns per unit of risk. EFU General Insurance is currently generating about 0.51 of returns per unit of risk over similar time horizon. If you would invest 8,872 in EFU General Insurance on September 1, 2024 and sell it today you would earn a total of 4,617 from holding EFU General Insurance or generate 52.04% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Pakistan State Oil vs. EFU General Insurance
Performance |
| Timeline |
| Pakistan State Oil |
| EFU General Insurance |
Pakistan State and EFU General Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Pakistan State and EFU General
The main advantage of trading using opposite Pakistan State and EFU General positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Pakistan State position performs unexpectedly, EFU General 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 EFU General will offset losses from the drop in EFU General's long position.| Pakistan State vs. Atlas Insurance | Pakistan State vs. Air Link Communication | Pakistan State vs. Data Agro | Pakistan State vs. EFU General Insurance |
| EFU General vs. Reliance Insurance Co | EFU General vs. Mughal Iron Steel | EFU General vs. United Insurance | EFU General vs. Crescent Steel Allied |
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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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