Correlation Between Thatta Cement and Orient Rental

Can any of the company-specific risk be diversified away by investing in both Thatta Cement and Orient Rental 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 Thatta Cement and Orient Rental into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Thatta Cement and Orient Rental Modaraba, you can compare the effects of market volatilities on Thatta Cement and Orient Rental 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 Thatta Cement with a short position of Orient Rental. Check out your portfolio center. Please also check ongoing floating volatility patterns of Thatta Cement and Orient Rental.

Diversification Opportunities for Thatta Cement and Orient Rental

0.6

Correlation Coefficient

Thatta Cement  Orient Rental

Poor diversification

The 3 months correlation between Thatta and Orient is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Thatta Cement and Orient Rental Modaraba in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Orient Rental Modaraba and Thatta Cement 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 Thatta Cement are associated (or correlated) with Orient Rental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Orient Rental Modaraba has no effect on the direction of Thatta Cement i.e., Thatta Cement and Orient Rental go up and down completely randomly.

Pair Corralation between Thatta Cement and Orient Rental

Assuming the 90 days trading horizon Thatta Cement is expected to generate 2.01 times more return on investment than Orient Rental. However, Thatta Cement is 2.01 times more volatile than Orient Rental Modaraba. It trades about 0.44 of its potential returns per unit of risk. Orient Rental Modaraba is currently generating about 0.08 per unit of risk. If you would invest  10,634  in Thatta Cement on September 15, 2024 and sell it today you would earn a total of  8,986  from holding Thatta Cement or generate 84.5% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Thatta Cement  vs.  Orient Rental Modaraba

Thatta Cement

Risk-Adjusted Performance

32 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Thatta Cement are ranked lower than 32 (%) of all global equities and portfolios over the last 90 days. Despite quite weak fundamental indicators, Thatta Cement disclosed solid returns over the last few months and may actually be approaching a breakup point.

Orient Rental Modaraba

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Orient Rental Modaraba are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Orient Rental reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Thatta Cement and Orient Rental

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

The idea behind Thatta Cement and Orient Rental Modaraba 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.

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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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.