Correlation Between Fauji Fertilizer and Unilever Pakistan

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

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

Diversification Opportunities for Fauji Fertilizer and Unilever Pakistan

0.51

Correlation Coefficient

Fauji Fertilizer  Unilever Pakistan

Very weak diversification

The 3 months correlation between Fauji and Unilever is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Fauji Fertilizer and Unilever Pakistan Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Unilever Pakistan Foods 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 Unilever Pakistan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Unilever Pakistan Foods has no effect on the direction of Fauji Fertilizer i.e., Fauji Fertilizer and Unilever Pakistan go up and down completely randomly.

Pair Corralation between Fauji Fertilizer and Unilever Pakistan

Assuming the 90 days trading horizon Fauji Fertilizer is expected to generate 1.68 times less return on investment than Unilever Pakistan. In addition to that, Fauji Fertilizer is 1.15 times more volatile than Unilever Pakistan Foods. It trades about 0.07 of its total potential returns per unit of risk. Unilever Pakistan Foods is currently generating about 0.13 per unit of volatility. If you would invest  2,113,387  in Unilever Pakistan Foods on December 29, 2024 and sell it today you would earn a total of  186,724  from holding Unilever Pakistan Foods or generate 8.84% return on investment over 90 days.

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

Fauji Fertilizer  vs.  Unilever Pakistan Foods

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.

Unilever Pakistan Foods

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Unilever Pakistan Foods are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Unilever Pakistan may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Fauji Fertilizer and Unilever Pakistan

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

The idea behind Fauji Fertilizer and Unilever Pakistan 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.