Correlation Between United Bank and Fauji Cement
Can any of the company-specific risk be diversified away by investing in both United Bank 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 United Bank and Fauji Cement into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between United Bank and Fauji Cement, you can compare the effects of market volatilities on United Bank 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 United Bank with a short position of Fauji Cement. Check out your portfolio center. Please also check ongoing floating volatility patterns of United Bank and Fauji Cement.
Diversification Opportunities for United Bank and Fauji Cement
0.62 | Correlation Coefficient |
Poor diversification
The 3 months correlation between United and Fauji is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding United Bank and Fauji Cement in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fauji Cement and United Bank 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 United Bank 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 United Bank i.e., United Bank and Fauji Cement go up and down completely randomly.
Pair Corralation between United Bank and Fauji Cement
Assuming the 90 days trading horizon United Bank is expected to generate 0.58 times more return on investment than Fauji Cement. However, United Bank is 1.73 times less risky than Fauji Cement. It trades about 0.48 of its potential returns per unit of risk. Fauji Cement is currently generating about 0.06 per unit of risk. If you would invest 33,745 in United Bank on October 20, 2024 and sell it today you would earn a total of 5,916 from holding United Bank or generate 17.53% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
United Bank vs. Fauji Cement
Performance |
| Timeline |
| United Bank |
| Fauji Cement |
United Bank and Fauji Cement Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with United Bank and Fauji Cement
The main advantage of trading using opposite United Bank and Fauji Cement positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if United Bank 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.| United Bank vs. Oil and Gas | United Bank vs. Pakistan State Oil | United Bank vs. Pakistan Petroleum | United Bank vs. Fauji Fertilizer |
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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 Commodity Directory module to find actively traded commodities issued by global exchanges.
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