Correlation Between Fauji Fertilizer and United Insurance
Can any of the company-specific risk be diversified away by investing in both Fauji Fertilizer and United 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 Fauji Fertilizer and United Insurance into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Fauji Fertilizer and United Insurance, you can compare the effects of market volatilities on Fauji Fertilizer and United 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 Fauji Fertilizer with a short position of United Insurance. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fauji Fertilizer and United Insurance.
Diversification Opportunities for Fauji Fertilizer and United Insurance
0.75 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Fauji and United is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Fauji Fertilizer and United Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Insurance and Fauji Fertilizer 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 Fauji Fertilizer are associated (or correlated) with United Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Insurance has no effect on the direction of Fauji Fertilizer i.e., Fauji Fertilizer and United Insurance go up and down completely randomly.
Pair Corralation between Fauji Fertilizer and United Insurance
Assuming the 90 days trading horizon Fauji Fertilizer is expected to generate 4.11 times more return on investment than United Insurance. However, Fauji Fertilizer is 4.11 times more volatile than United Insurance. It trades about 0.24 of its potential returns per unit of risk. United Insurance is currently generating about 0.08 per unit of risk. If you would invest 28,391 in Fauji Fertilizer on September 4, 2024 and sell it today you would earn a total of 4,858 from holding Fauji Fertilizer or generate 17.11% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Fauji Fertilizer vs. United Insurance
Performance |
| Timeline |
| Fauji Fertilizer |
| United Insurance |
Fauji Fertilizer and United Insurance Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Fauji Fertilizer and United Insurance
The main advantage of trading using opposite Fauji Fertilizer and United Insurance positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fauji Fertilizer position performs unexpectedly, United 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 United Insurance will offset losses from the drop in United Insurance's long position.| Fauji Fertilizer vs. Masood Textile Mills | Fauji Fertilizer vs. Fauji Foods | Fauji Fertilizer vs. KSB Pumps | Fauji Fertilizer vs. Mari Petroleum |
| United Insurance vs. Oil and Gas | United Insurance vs. Pakistan State Oil | United Insurance vs. Pakistan Petroleum | United Insurance vs. Fauji Fertilizer |
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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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