Correlation Between Century Insurance and Fauji Foods

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Can any of the company-specific risk be diversified away by investing in both Century Insurance and Fauji Foods 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 Century Insurance and Fauji Foods into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Century Insurance and Fauji Foods, you can compare the effects of market volatilities on Century Insurance and Fauji Foods 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 Century Insurance with a short position of Fauji Foods. Check out your portfolio center. Please also check ongoing floating volatility patterns of Century Insurance and Fauji Foods.

Diversification Opportunities for Century Insurance and Fauji Foods

0.88
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Century and Fauji is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Century Insurance and Fauji Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fauji Foods and Century Insurance 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 Century Insurance are associated (or correlated) with Fauji Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fauji Foods has no effect on the direction of Century Insurance i.e., Century Insurance and Fauji Foods go up and down completely randomly.

Pair Corralation between Century Insurance and Fauji Foods

Assuming the 90 days trading horizon Century Insurance is expected to generate 0.79 times more return on investment than Fauji Foods. However, Century Insurance is 1.27 times less risky than Fauji Foods. It trades about 0.39 of its potential returns per unit of risk. Fauji Foods is currently generating about 0.27 per unit of risk. If you would invest  3,090  in Century Insurance on August 28, 2024 and sell it today you would earn a total of  630.00  from holding Century Insurance or generate 20.39% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Century Insurance  vs.  Fauji Foods

 Performance 
       Timeline  
Century Insurance 

Risk-Adjusted Performance

19 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Century Insurance are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Century Insurance sustained solid returns over the last few months and may actually be approaching a breakup point.
Fauji Foods 

Risk-Adjusted Performance

15 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Fauji Foods are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Fauji Foods reported solid returns over the last few months and may actually be approaching a breakup point.

Century Insurance and Fauji Foods Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Century Insurance and Fauji Foods

The main advantage of trading using opposite Century Insurance and Fauji Foods positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Century Insurance position performs unexpectedly, Fauji Foods 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 Fauji Foods will offset losses from the drop in Fauji Foods' long position.
The idea behind Century Insurance and Fauji Foods 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.

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