Correlation Between Clover Pakistan and Fauji Foods

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

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

Diversification Opportunities for Clover Pakistan and Fauji Foods

0.82

Correlation Coefficient

Clover Pakistan  Fauji Foods

Very poor diversification

The 3 months correlation between Clover and Fauji is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Clover Pakistan and Fauji Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fauji Foods and Clover Pakistan 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 Clover Pakistan 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 Clover Pakistan i.e., Clover Pakistan and Fauji Foods go up and down completely randomly.

Pair Corralation between Clover Pakistan and Fauji Foods

Assuming the 90 days trading horizon Clover Pakistan is expected to generate 4.58 times less return on investment than Fauji Foods. But when comparing it to its historical volatility, Clover Pakistan is 1.15 times less risky than Fauji Foods. It trades about 0.06 of its potential returns per unit of risk. Fauji Foods is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  1,044  in Fauji Foods on September 26, 2024 and sell it today you would earn a total of  451.00  from holding Fauji Foods or generate 43.2% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	97.67%
Values	Daily Returns

Clover Pakistan  vs.  Fauji Foods

Clover Pakistan

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Clover Pakistan are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Clover Pakistan sustained solid returns over the last few months and may actually be approaching a breakup point.

Fauji Foods

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Fauji Foods are ranked lower than 19 (%) 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 Clover Pakistan and Fauji Foods

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

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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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.