Correlation Between Fauji Foods and First Fidelity

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

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

Diversification Opportunities for Fauji Foods and First Fidelity

-0.15

Correlation Coefficient

Fauji Foods  First Fidelity

Good diversification

The 3 months correlation between Fauji and First is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Fauji Foods and First Fidelity Leasing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Fidelity Leasing and Fauji Foods 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 Foods are associated (or correlated) with First Fidelity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Fidelity Leasing has no effect on the direction of Fauji Foods i.e., Fauji Foods and First Fidelity go up and down completely randomly.

Pair Corralation between Fauji Foods and First Fidelity

Assuming the 90 days trading horizon Fauji Foods is expected to generate 0.58 times more return on investment than First Fidelity. However, Fauji Foods is 1.72 times less risky than First Fidelity. It trades about 0.22 of its potential returns per unit of risk. First Fidelity Leasing is currently generating about 0.01 per unit of risk. If you would invest  1,001  in Fauji Foods on October 25, 2024 and sell it today you would earn a total of  644.00  from holding Fauji Foods or generate 64.34% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	91.94%
Values	Daily Returns

Fauji Foods  vs.  First Fidelity Leasing

Fauji Foods

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Fauji Foods are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Fauji Foods reported solid returns over the last few months and may actually be approaching a breakup point.

First Fidelity Leasing

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Fidelity Leasing has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, First Fidelity 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 Foods and First Fidelity

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

The idea behind Fauji Foods and First Fidelity Leasing 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.

Check out your portfolio center.

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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.