Correlation Between Big Bird and Engro Poly

Can any of the company-specific risk be diversified away by investing in both Big Bird and Engro Poly 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 Big Bird and Engro Poly into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Big Bird Foods and Engro Poly, you can compare the effects of market volatilities on Big Bird and Engro Poly 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 Big Bird with a short position of Engro Poly. Check out your portfolio center. Please also check ongoing floating volatility patterns of Big Bird and Engro Poly.

Diversification Opportunities for Big Bird and Engro Poly

-0.6

Correlation Coefficient

Big Bird  Engro Poly

Excellent diversification

The 3 months correlation between Big and Engro is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Big Bird Foods and Engro Poly in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Engro Poly and Big Bird 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 Big Bird Foods are associated (or correlated) with Engro Poly. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Engro Poly has no effect on the direction of Big Bird i.e., Big Bird and Engro Poly go up and down completely randomly.

Pair Corralation between Big Bird and Engro Poly

Assuming the 90 days trading horizon Big Bird Foods is expected to under-perform the Engro Poly. In addition to that, Big Bird is 1.05 times more volatile than Engro Poly. It trades about -0.06 of its total potential returns per unit of risk. Engro Poly is currently generating about 0.02 per unit of volatility. If you would invest  1,102  in Engro Poly on October 11, 2024 and sell it today you would earn a total of  8.00  from holding Engro Poly or generate 0.73% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	85.48%
Values	Daily Returns

Big Bird Foods  vs.  Engro Poly

Big Bird Foods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Big Bird Foods has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Engro Poly

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Engro Poly are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong essential indicators, Engro Poly is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Big Bird and Engro Poly

The main advantage of trading using opposite Big Bird and Engro Poly positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Big Bird position performs unexpectedly, Engro Poly 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 Engro Poly will offset losses from the drop in Engro Poly's long position.

The idea behind Big Bird Foods and Engro Poly 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.