Correlation Between Pakistan State and Oil

Can any of the company-specific risk be diversified away by investing in both Pakistan State and Oil 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 Oil 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 Oil and Gas, you can compare the effects of market volatilities on Pakistan State and Oil 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 Oil. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pakistan State and Oil.

Diversification Opportunities for Pakistan State and Oil

0.95

Correlation Coefficient

Pakistan State  Oil

Almost no diversification

The 3 months correlation between Pakistan and Oil is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Pakistan State Oil and Oil and Gas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Oil and Gas 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 Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Oil and Gas has no effect on the direction of Pakistan State i.e., Pakistan State and Oil go up and down completely randomly.

Pair Corralation between Pakistan State and Oil

Assuming the 90 days trading horizon Pakistan State Oil is expected to generate 2.09 times more return on investment than Oil. However, Pakistan State is 2.09 times more volatile than Oil and Gas. It trades about 0.42 of its potential returns per unit of risk. Oil and Gas is currently generating about 0.29 per unit of risk. If you would invest  17,773  in Pakistan State Oil on August 6, 2024 and sell it today you would earn a total of  5,929  from holding Pakistan State Oil or generate 33.36% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	95.45%
Values	Daily Returns

Pakistan State Oil  vs.  Oil and Gas

Pakistan State Oil

Risk-Adjusted Performance

26 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Pakistan State Oil are ranked lower than 26 (%) of all global equities and portfolios over the last 90 days. Even with relatively conflicting basic indicators, Pakistan State reported solid returns over the last few months and may actually be approaching a breakup point.

Oil and Gas

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Oil and Gas are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Oil sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Pakistan State and Oil

The main advantage of trading using opposite Pakistan State and Oil positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Pakistan State position performs unexpectedly, Oil 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 Oil will offset losses from the drop in Oil's long position.

The idea behind Pakistan State Oil and Oil and Gas 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.

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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.