Quantitative Risk Assessment and Insights: A thorough Investigation of Pakistan's cement Industry

This paper provides a detailed risk assessment of cement companies in Pakistan integrating both financial and non-financial risk measures. The objective is to assess and quantify the associated risks of these companies from the perspective of potential investors. Leveraging a range of different risk proxies, this study aims to address the risk landscape of the cement sector of Pakistan along with its implications. To measure financial risks, downside volatility is calculated through Value at Risk (VaR), utilizing both historical and weighted historical approaches. The methodologies applied in this study are also useful for estimating losses under different market conditions. Furthermore, risk profiles have been developed based on fundamental analysis by utilizing measures identified in prior studies. Trading liquidity risk is measured using the Amihud illiquidity measure while credit risk is measured using the Black-Scholes-Merton (BSM) model. In addition to financial indicators, this study also analyzes non-financial risks, including factors such as ownership structure, ESG compliance, and corporate governance. This in turn allow a comprehensive overall assessment of risk for each of the companies operating in the cement sector of Pakistan. This research study establishes that companies that attract potential shareholders also attract potential lenders because of their sound financial profiles and risk management performance. In order to summarize the findings, we created a scoring model where different risks are quantified according to predetermined weightages and thresholds. This scorecard can be helpful for the stakeholders since it provides them with practical means to assess cement companies according to their risk appetite and investment objectives. This study highlights the need to take a holistic approach to risk assessment including the use of both the quantitative and qualitative measures. Hence, by developing a scorecard, we believe that it will facilitate the stakeholders by offering a comprehensive insight into the risks that exist in the cement industry of Pakistan.