Correlation Between Pakistan Aluminium and Fauji Foods
Can any of the company-specific risk be diversified away by investing in both Pakistan Aluminium 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 Pakistan Aluminium and Fauji Foods into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Pakistan Aluminium Beverage and Fauji Foods, you can compare the effects of market volatilities on Pakistan Aluminium 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 Pakistan Aluminium with a short position of Fauji Foods. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pakistan Aluminium and Fauji Foods.
Diversification Opportunities for Pakistan Aluminium and Fauji Foods
0.78 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Pakistan and Fauji is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Pakistan Aluminium Beverage and Fauji Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fauji Foods and Pakistan Aluminium 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 Pakistan Aluminium Beverage 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 Pakistan Aluminium i.e., Pakistan Aluminium and Fauji Foods go up and down completely randomly.
Pair Corralation between Pakistan Aluminium and Fauji Foods
Assuming the 90 days trading horizon Pakistan Aluminium Beverage is expected to under-perform the Fauji Foods. But the stock apears to be less risky and, when comparing its historical volatility, Pakistan Aluminium Beverage is 1.4 times less risky than Fauji Foods. The stock trades about -0.12 of its potential returns per unit of risk. The Fauji Foods is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest 1,044 in Fauji Foods on August 29, 2024 and sell it today you would earn a total of 142.00 from holding Fauji Foods or generate 13.6% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Pakistan Aluminium Beverage vs. Fauji Foods
Performance |
| Timeline |
| Pakistan Aluminium |
| Fauji Foods |
Pakistan Aluminium and Fauji Foods Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Pakistan Aluminium and Fauji Foods
The main advantage of trading using opposite Pakistan Aluminium and Fauji Foods positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Pakistan Aluminium 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.| Pakistan Aluminium vs. Habib Insurance | Pakistan Aluminium vs. Ghandhara Automobile | Pakistan Aluminium vs. Century Insurance | Pakistan Aluminium vs. Reliance Weaving Mills |
| Fauji Foods vs. Hi Tech Lubricants | Fauji Foods vs. Metropolitan Steel Corp | Fauji Foods vs. Amreli Steels | Fauji Foods vs. Big Bird Foods |
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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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