Correlation Between K Electric and Fauji Cement
Can any of the company-specific risk be diversified away by investing in both K Electric 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 K Electric and Fauji Cement into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between K Electric and Fauji Cement, you can compare the effects of market volatilities on K Electric 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 K Electric with a short position of Fauji Cement. Check out your portfolio center. Please also check ongoing floating volatility patterns of K Electric and Fauji Cement.
Diversification Opportunities for K Electric and Fauji Cement
0.73 | Correlation Coefficient |
Poor diversification
The 3 months correlation between KEL and Fauji is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding K Electric and Fauji Cement in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fauji Cement and K Electric 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 K Electric 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 K Electric i.e., K Electric and Fauji Cement go up and down completely randomly.
Pair Corralation between K Electric and Fauji Cement
Assuming the 90 days trading horizon K Electric is expected to under-perform the Fauji Cement. But the stock apears to be less risky and, when comparing its historical volatility, K Electric is 1.06 times less risky than Fauji Cement. The stock trades about -0.32 of its potential returns per unit of risk. The Fauji Cement is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest 3,670 in Fauji Cement on October 24, 2024 and sell it today you would lose (70.00) from holding Fauji Cement or give up 1.91% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.24% |
| Values | Daily Returns |
K Electric vs. Fauji Cement
Performance |
| Timeline |
| K Electric |
| Fauji Cement |
K Electric and Fauji Cement Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with K Electric and Fauji Cement
The main advantage of trading using opposite K Electric and Fauji Cement positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if K Electric 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.| K Electric vs. Askari General Insurance | K Electric vs. IGI Life Insurance | K Electric vs. Sardar Chemical Industries | K Electric vs. Wah Nobel Chemicals |
| Fauji Cement vs. Ghandhara Automobile | Fauji Cement vs. Fauji Foods | Fauji Cement vs. Century Insurance | Fauji Cement vs. EFU General Insurance |
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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.
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