Correlation Between Bank Alfalah and Fauji Fertilizer

Can any of the company-specific risk be diversified away by investing in both Bank Alfalah 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 Bank Alfalah and Fauji Fertilizer into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Bank Alfalah and Fauji Fertilizer, you can compare the effects of market volatilities on Bank Alfalah 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 Bank Alfalah with a short position of Fauji Fertilizer. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank Alfalah and Fauji Fertilizer.

Diversification Opportunities for Bank Alfalah and Fauji Fertilizer

0.86

Correlation Coefficient

Bank Alfalah  Fauji Fertilizer

Very poor diversification

The 3 months correlation between Bank and Fauji is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Bank Alfalah and Fauji Fertilizer in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fauji Fertilizer and Bank Alfalah 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 Bank Alfalah 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 Bank Alfalah i.e., Bank Alfalah and Fauji Fertilizer go up and down completely randomly.

Pair Corralation between Bank Alfalah and Fauji Fertilizer

Assuming the 90 days trading horizon Bank Alfalah is expected to generate 3.18 times less return on investment than Fauji Fertilizer. In addition to that, Bank Alfalah is 1.02 times more volatile than Fauji Fertilizer. It trades about 0.1 of its total potential returns per unit of risk. Fauji Fertilizer is currently generating about 0.31 per unit of volatility. If you would invest  29,987  in Fauji Fertilizer on September 27, 2024 and sell it today you would earn a total of  8,467  from holding Fauji Fertilizer or generate 28.24% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

Bank Alfalah  vs.  Fauji Fertilizer

Bank Alfalah

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Bank Alfalah are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Bank Alfalah sustained solid returns over the last few months and may actually be approaching a breakup point.

Fauji Fertilizer

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Fauji Fertilizer are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Fauji Fertilizer reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bank Alfalah and Fauji Fertilizer

The main advantage of trading using opposite Bank Alfalah and Fauji Fertilizer positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank Alfalah 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.

The idea behind Bank Alfalah and Fauji Fertilizer pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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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 Stocks Directory module to find actively traded stocks across global markets.