Correlation Between East West and Fauji Foods
Can any of the company-specific risk be diversified away by investing in both East West 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 East West and Fauji Foods into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between East West Insurance and Fauji Foods, you can compare the effects of market volatilities on East West 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 East West with a short position of Fauji Foods. Check out your portfolio center. Please also check ongoing floating volatility patterns of East West and Fauji Foods.
Diversification Opportunities for East West and Fauji Foods
-0.19 | Correlation Coefficient |
Good diversification
The 3 months correlation between East and Fauji is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding East West Insurance and Fauji Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fauji Foods and East West 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 East West 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 East West i.e., East West and Fauji Foods go up and down completely randomly.
Pair Corralation between East West and Fauji Foods
Assuming the 90 days trading horizon East West is expected to generate 14.78 times less return on investment than Fauji Foods. But when comparing it to its historical volatility, East West Insurance is 14.14 times less risky than Fauji Foods. It trades about 0.26 of its potential returns per unit of risk. Fauji Foods is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest 1,044 in Fauji Foods on August 28, 2024 and sell it today you would earn a total of 182.00 from holding Fauji Foods or generate 17.43% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 71.43% |
| Values | Daily Returns |
East West Insurance vs. Fauji Foods
Performance |
| Timeline |
| East West Insurance |
| Fauji Foods |
East West and Fauji Foods Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with East West and Fauji Foods
The main advantage of trading using opposite East West and Fauji Foods positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if East West 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.| East West vs. Habib Insurance | East West vs. Century Insurance | East West vs. Reliance Weaving Mills | East West vs. Media Times |
| Fauji Foods vs. Pak Gulf Leasing | Fauji Foods vs. Air Link Communication | Fauji Foods vs. Shifa International Hospitals | Fauji Foods vs. Grays Leasing |
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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.
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