Correlation Between Fauji Fertilizer and Crescent Star

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

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

Diversification Opportunities for Fauji Fertilizer and Crescent Star

-0.12

Correlation Coefficient

Fauji Fertilizer  Crescent Star

Good diversification

The 3 months correlation between Fauji and Crescent is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding Fauji Fertilizer and Crescent Star Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Crescent Star Insurance and Fauji Fertilizer 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 Fauji Fertilizer are associated (or correlated) with Crescent Star. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Crescent Star Insurance has no effect on the direction of Fauji Fertilizer i.e., Fauji Fertilizer and Crescent Star go up and down completely randomly.

Pair Corralation between Fauji Fertilizer and Crescent Star

Assuming the 90 days trading horizon Fauji Fertilizer is expected to generate 0.58 times more return on investment than Crescent Star. However, Fauji Fertilizer is 1.72 times less risky than Crescent Star. It trades about 0.07 of its potential returns per unit of risk. Crescent Star Insurance is currently generating about -0.03 per unit of risk. If you would invest  35,238  in Fauji Fertilizer on December 29, 2024 and sell it today you would earn a total of  1,738  from holding Fauji Fertilizer or generate 4.93% return on investment over 90 days.

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

Fauji Fertilizer  vs.  Crescent Star Insurance

Fauji Fertilizer

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Fauji Fertilizer are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Fauji Fertilizer is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Crescent Star Insurance

Risk-Adjusted Performance

Very Weak

Over the last 90 days Crescent Star Insurance has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Crescent Star is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Fauji Fertilizer and Crescent Star

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

The idea behind Fauji Fertilizer and Crescent Star Insurance 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.