Correlation Between Data Agro and Fauji Foods

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

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

Diversification Opportunities for Data Agro and Fauji Foods

0.53

Correlation Coefficient

Data Agro  Fauji Foods

Very weak diversification

The 3 months correlation between Data and Fauji is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Data Agro and Fauji Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fauji Foods and Data Agro 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 Data Agro 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 Data Agro i.e., Data Agro and Fauji Foods go up and down completely randomly.

Pair Corralation between Data Agro and Fauji Foods

Assuming the 90 days trading horizon Data Agro is expected to generate 1.25 times more return on investment than Fauji Foods. However, Data Agro is 1.25 times more volatile than Fauji Foods. It trades about 0.49 of its potential returns per unit of risk. Fauji Foods is currently generating about 0.31 per unit of risk. If you would invest  7,583  in Data Agro on September 29, 2024 and sell it today you would earn a total of  6,084  from holding Data Agro or generate 80.23% return on investment over 90 days.

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

Data Agro  vs.  Fauji Foods

Data Agro

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Data Agro are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Data Agro sustained solid returns over the last few months and may actually be approaching a breakup point.

Fauji Foods

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Fauji Foods are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. Even with relatively conflicting basic indicators, Fauji Foods reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Data Agro and Fauji Foods

The main advantage of trading using opposite Data Agro and Fauji Foods positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Data Agro 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 Data Agro 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.