Correlation Between Century Insurance and Fauji Foods

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

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

Diversification Opportunities for Century Insurance and Fauji Foods

-0.38

Correlation Coefficient

Century Insurance  Fauji Foods

Very good diversification

The 3 months correlation between Century and Fauji is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Century Insurance and Fauji Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fauji Foods and Century Insurance 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 Century Insurance 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 Century Insurance i.e., Century Insurance and Fauji Foods go up and down completely randomly.

Pair Corralation between Century Insurance and Fauji Foods

Assuming the 90 days trading horizon Century Insurance is expected to generate 0.74 times more return on investment than Fauji Foods. However, Century Insurance is 1.35 times less risky than Fauji Foods. It trades about 0.24 of its potential returns per unit of risk. Fauji Foods is currently generating about -0.04 per unit of risk. If you would invest  3,787  in Century Insurance on December 28, 2024 and sell it today you would earn a total of  1,022  from holding Century Insurance or generate 26.99% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	96.77%
Values	Daily Returns

Century Insurance  vs.  Fauji Foods

Century Insurance

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Century Insurance are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Century Insurance sustained solid returns over the last few months and may actually be approaching a breakup point.

Fauji Foods

Risk-Adjusted Performance

Very Weak

Over the last 90 days Fauji Foods has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Fauji Foods is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Century Insurance and Fauji Foods

The main advantage of trading using opposite Century Insurance and Fauji Foods positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Century Insurance 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 Century Insurance 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.