Correlation Between Big Bird and Fauji Foods

Can any of the company-specific risk be diversified away by investing in both Big Bird 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 Big Bird and Fauji Foods 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 Fauji Foods, you can compare the effects of market volatilities on Big Bird 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 Big Bird with a short position of Fauji Foods. Check out your portfolio center. Please also check ongoing floating volatility patterns of Big Bird and Fauji Foods.

Diversification Opportunities for Big Bird and Fauji Foods

-0.73

Correlation Coefficient

Big Bird  Fauji Foods

Pay attention - limited upside

The 3 months correlation between Big and Fauji is -0.73. Overlapping area represents the amount of risk that can be diversified away by holding Big Bird Foods and Fauji Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fauji Foods 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 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 Big Bird i.e., Big Bird and Fauji Foods go up and down completely randomly.

Pair Corralation between Big Bird and Fauji Foods

Assuming the 90 days trading horizon Big Bird is expected to generate 1.43 times less return on investment than Fauji Foods. In addition to that, Big Bird is 1.37 times more volatile than Fauji Foods. It trades about 0.06 of its total potential returns per unit of risk. Fauji Foods is currently generating about 0.11 per unit of volatility. If you would invest  443.00  in Fauji Foods on October 11, 2024 and sell it today you would earn a total of  1,222  from holding Fauji Foods or generate 275.85% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	22.77%
Values	Daily Returns

Big Bird Foods  vs.  Fauji Foods

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.

Fauji Foods

Risk-Adjusted Performance

22 of 100

Solid

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

Pair Trading with Big Bird and Fauji Foods

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

The idea behind Big Bird Foods and Fauji Foods 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.

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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.