Can any of the company-specific risk be diversified away by investing in both First Dawood and Adamjee Insurance 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 First Dawood and Adamjee Insurance into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Dawood Investment and Adamjee Insurance, you can compare the effects of market volatilities on First Dawood and Adamjee Insurance 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 First Dawood with a short position of Adamjee Insurance. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Dawood and Adamjee Insurance.
Diversification Opportunities for First Dawood and Adamjee Insurance
The 3 months correlation between First and Adamjee is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding First Dawood Investment and Adamjee Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Adamjee Insurance and First Dawood 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 First Dawood Investment are associated (or correlated) with Adamjee Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Adamjee Insurance has no effect on the direction of First Dawood i.e., First Dawood and Adamjee Insurance go up and down completely randomly.
Pair Corralation between First Dawood and Adamjee Insurance
Assuming the 90 days trading horizon First Dawood is expected to generate 19.59 times less return on investment than Adamjee Insurance. In addition to that, First Dawood is 1.9 times more volatile than Adamjee Insurance. It trades about 0.01 of its total potential returns per unit of risk. Adamjee Insurance is currently generating about 0.29 per unit of volatility. If you would invest 3,124 in Adamjee Insurance on September 3, 2023 and sell it today you would earn a total of 313.00 from holding Adamjee Insurance or generate 10.02% return on investment over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in First Dawood Investment are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite quite weak essential indicators, First Dawood disclosed solid returns over the last few months and may actually be approaching a breakup point.
Compared to the overall equity markets, risk-adjusted returns on investments in Adamjee Insurance are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Adamjee Insurance sustained solid returns over the last few months and may actually be approaching a breakup point.
First Dawood and Adamjee Insurance Volatility Contrast
Predicted Return Density
Pair Trading with First Dawood and Adamjee Insurance
The main advantage of trading using opposite First Dawood and Adamjee Insurance positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Dawood position performs unexpectedly, Adamjee Insurance 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 Adamjee Insurance will offset losses from the drop in Adamjee Insurance's long position.
The idea behind First Dawood Investment and Adamjee Insurance 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.
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