Correlation Between Pak Gulf and Fauji Fertilizer
Can any of the company-specific risk be diversified away by investing in both Pak Gulf and Fauji Fertilizer 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 Pak Gulf and Fauji Fertilizer into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Pak Gulf Leasing and Fauji Fertilizer, you can compare the effects of market volatilities on Pak Gulf and Fauji Fertilizer 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 Pak Gulf with a short position of Fauji Fertilizer. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pak Gulf and Fauji Fertilizer.
Diversification Opportunities for Pak Gulf and Fauji Fertilizer
0.71 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Pak and Fauji is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Pak Gulf Leasing and Fauji Fertilizer in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fauji Fertilizer and Pak Gulf 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 Pak Gulf Leasing are associated (or correlated) with Fauji Fertilizer. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fauji Fertilizer has no effect on the direction of Pak Gulf i.e., Pak Gulf and Fauji Fertilizer go up and down completely randomly.
Pair Corralation between Pak Gulf and Fauji Fertilizer
Assuming the 90 days trading horizon Pak Gulf Leasing is expected to generate 3.94 times more return on investment than Fauji Fertilizer. However, Pak Gulf is 3.94 times more volatile than Fauji Fertilizer. It trades about 0.09 of its potential returns per unit of risk. Fauji Fertilizer is currently generating about 0.19 per unit of risk. If you would invest 243.00 in Pak Gulf Leasing on September 3, 2024 and sell it today you would earn a total of 937.00 from holding Pak Gulf Leasing or generate 385.6% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 83.15% |
| Values | Daily Returns |
Pak Gulf Leasing vs. Fauji Fertilizer
Performance |
| Timeline |
| Pak Gulf Leasing |
| Fauji Fertilizer |
Pak Gulf and Fauji Fertilizer Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Pak Gulf and Fauji Fertilizer
The main advantage of trading using opposite Pak Gulf and Fauji Fertilizer positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Pak Gulf position performs unexpectedly, Fauji Fertilizer 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 Fertilizer will offset losses from the drop in Fauji Fertilizer's long position.| Pak Gulf vs. Masood Textile Mills | Pak Gulf vs. Fauji Foods | Pak Gulf vs. KSB Pumps | Pak Gulf vs. Mari Petroleum |
| Fauji Fertilizer vs. Engro Polymer Chemicals | Fauji Fertilizer vs. MCB Investment Manag | Fauji Fertilizer vs. Askari General Insurance | Fauji Fertilizer vs. Murree Brewery |
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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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