Correlation Between Fauji Foods and Fauji Cement
Can any of the company-specific risk be diversified away by investing in both Fauji Foods and Fauji Cement 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 Foods and Fauji Cement into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Fauji Foods and Fauji Cement, you can compare the effects of market volatilities on Fauji Foods and Fauji Cement 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 Foods with a short position of Fauji Cement. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fauji Foods and Fauji Cement.
Diversification Opportunities for Fauji Foods and Fauji Cement
0.4 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Fauji and Fauji is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Fauji Foods and Fauji Cement in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fauji Cement and Fauji Foods 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 Foods are associated (or correlated) with Fauji Cement. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fauji Cement has no effect on the direction of Fauji Foods i.e., Fauji Foods and Fauji Cement go up and down completely randomly.
Pair Corralation between Fauji Foods and Fauji Cement
Assuming the 90 days trading horizon Fauji Foods is expected to generate 1.41 times more return on investment than Fauji Cement. However, Fauji Foods is 1.41 times more volatile than Fauji Cement. It trades about 0.22 of its potential returns per unit of risk. Fauji Cement is currently generating about -0.02 per unit of risk. If you would invest 1,449 in Fauji Foods on October 24, 2024 and sell it today you would earn a total of 242.00 from holding Fauji Foods or generate 16.7% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Fauji Foods vs. Fauji Cement
Performance |
| Timeline |
| Fauji Foods |
| Fauji Cement |
Fauji Foods and Fauji Cement Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Fauji Foods and Fauji Cement
The main advantage of trading using opposite Fauji Foods and Fauji Cement positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fauji Foods position performs unexpectedly, Fauji Cement 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 Cement will offset losses from the drop in Fauji Cement's long position.| Fauji Foods vs. Sardar Chemical Industries | Fauji Foods vs. Pakistan Synthetics | Fauji Foods vs. Shaheen Insurance | Fauji Foods vs. Wah Nobel Chemicals |
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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 Equity Valuation module to check real value of public entities based on technical and fundamental data.
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