Correlation Between Fauji Fertilizer and EFU General

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

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

Diversification Opportunities for Fauji Fertilizer and EFU General

0.38

Correlation Coefficient

Fauji Fertilizer  EFU General

Weak diversification

The 3 months correlation between Fauji and EFU is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Fauji Fertilizer and EFU General Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EFU General 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 EFU General. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EFU General Insurance has no effect on the direction of Fauji Fertilizer i.e., Fauji Fertilizer and EFU General go up and down completely randomly.

Pair Corralation between Fauji Fertilizer and EFU General

Assuming the 90 days trading horizon Fauji Fertilizer is expected to generate 2.08 times less return on investment than EFU General. But when comparing it to its historical volatility, Fauji Fertilizer is 2.13 times less risky than EFU General. It trades about 0.07 of its potential returns per unit of risk. EFU General Insurance is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  11,419  in EFU General Insurance on December 29, 2024 and sell it today you would earn a total of  1,070  from holding EFU General Insurance or generate 9.37% return on investment over 90 days.

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

Fauji Fertilizer  vs.  EFU General 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.

EFU General Insurance

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in EFU General Insurance are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, EFU General may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Fauji Fertilizer and EFU General

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

The idea behind Fauji Fertilizer and EFU General 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 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.