Correlation Between Fauji Fertilizer and Data Agro

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

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

Diversification Opportunities for Fauji Fertilizer and Data Agro

-0.35

Correlation Coefficient

Fauji Fertilizer  Data Agro

Very good diversification

The 3 months correlation between Fauji and Data is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Fauji Fertilizer and Data Agro in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Data Agro 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 Data Agro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Data Agro has no effect on the direction of Fauji Fertilizer i.e., Fauji Fertilizer and Data Agro go up and down completely randomly.

Pair Corralation between Fauji Fertilizer and Data Agro

Assuming the 90 days trading horizon Fauji Fertilizer is expected to generate 0.74 times more return on investment than Data Agro. However, Fauji Fertilizer is 1.35 times less risky than Data Agro. It trades about 0.4 of its potential returns per unit of risk. Data Agro is currently generating about 0.0 per unit of risk. If you would invest  18,265  in Fauji Fertilizer on September 14, 2024 and sell it today you would earn a total of  20,253  from holding Fauji Fertilizer or generate 110.88% 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.  Data Agro

Fauji Fertilizer

Risk-Adjusted Performance

31 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Fauji Fertilizer are ranked lower than 31 (%) of all global equities and portfolios over the last 90 days. Even with relatively conflicting basic indicators, Fauji Fertilizer reported solid returns over the last few months and may actually be approaching a breakup point.

Data Agro

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Data Agro has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Data Agro 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 Data Agro

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

The idea behind Fauji Fertilizer and Data Agro 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 Transaction History module to view history of all your transactions and understand their impact on performance.