Correlation Between Shell Pakistan and National Refinery
Can any of the company-specific risk be diversified away by investing in both Shell Pakistan and National Refinery 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 Shell Pakistan and National Refinery into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Shell Pakistan and National Refinery, you can compare the effects of market volatilities on Shell Pakistan and National Refinery 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 Shell Pakistan with a short position of National Refinery. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shell Pakistan and National Refinery.
Diversification Opportunities for Shell Pakistan and National Refinery
0.59 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Shell and National is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Shell Pakistan and National Refinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Refinery and Shell Pakistan 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 Shell Pakistan are associated (or correlated) with National Refinery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Refinery has no effect on the direction of Shell Pakistan i.e., Shell Pakistan and National Refinery go up and down completely randomly.
Pair Corralation between Shell Pakistan and National Refinery
Assuming the 90 days trading horizon Shell Pakistan is expected to generate 1.28 times less return on investment than National Refinery. But when comparing it to its historical volatility, Shell Pakistan is 1.75 times less risky than National Refinery. It trades about 0.29 of its potential returns per unit of risk. National Refinery is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest 20,867 in National Refinery on August 31, 2024 and sell it today you would earn a total of 2,972 from holding National Refinery or generate 14.24% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Shell Pakistan vs. National Refinery
Performance |
| Timeline |
| Shell Pakistan |
| National Refinery |
Shell Pakistan and National Refinery Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Shell Pakistan and National Refinery
The main advantage of trading using opposite Shell Pakistan and National Refinery positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Shell Pakistan position performs unexpectedly, National Refinery 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 National Refinery will offset losses from the drop in National Refinery's long position.| Shell Pakistan vs. National Bank of | Shell Pakistan vs. United Bank | Shell Pakistan vs. Bank Alfalah | Shell Pakistan vs. Allied Bank |
| National Refinery vs. National Bank of | National Refinery vs. United Bank | National Refinery vs. Bank Alfalah | National Refinery vs. Allied Bank |
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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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