BETA ANALYSIS:

Beta (Shell): -0.010796295

Beta (PSO): 0.286654124
Shell has a negative slope value of the security characteristic line. This
means that in comparison to the market return, the return of the company is
opposite. Moreover, the value is minutely below zero which shows that the
volatility of the stock price of shell is not high as compared to the market.
For an investor, looking at the Beta value and the shape of the SCL, this is
positive news as given the recent stock market situation of Pakistan the
market fell to new lows beginning 2019. This negative correlation between
the market and shell means that investors would get better returns but
there would be less volatility which makes Shell an ideal place to invest to
balance the portfolio return in a bearish stock market. Shell also has a
positive alpha (y intercept) which means that even if the stock market were
to give no returns, the shares would still generate a positive return.

Pakistan state oil (PSO) on the other hand has a higher and a positive
value of the beta. It signifies that correlation between the market and the
firm is positive, meaning that the stock swings whichever way the market
does. The value of beta is also quite high, especially in comparison to shell,
indicating volatility. In a bull market, PSO stocks would have favoured any
investment portfolio but ever since the stock market crashes in 2019, the
stocks have had negative impact on the investment return. Taking into
account an investment portfolio, a PSO stock would be much more riskier
than that of Shell. It is also quite pricier. This volatility comes with the
advantage that it can generate higher returns, but it is heavily reliant on the
market trend. PSO also is riskier since it has a positive alpha (y-intercept)
making it a profit generating stock if the market gave no returns.

Given an investment portfolio for an investor in PSX of 80% shell shares

and 20% PSO shares, the portfolio would generate stable positive returns.
The negative return by PSO would be controlled and possibly offset by the
shell shares’ positive return.
A risk averse investor in august 2019 would prefer a higher shell stock
shares in the portfolio and thus would be willing to invest in it readily.
Whereas, for PSO, the opposite case would be true as the investor would
be unwilling to pay high for its shares considering its trend.