Correlation Between Fauji Foods and JS Investments

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

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

Diversification Opportunities for Fauji Foods and JS Investments

0.31

Correlation Coefficient

Fauji Foods  JS Investments

Weak diversification

The 3 months correlation between Fauji and JSIL is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Fauji Foods and JS Investments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JS Investments 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 JS Investments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JS Investments has no effect on the direction of Fauji Foods i.e., Fauji Foods and JS Investments go up and down completely randomly.

Pair Corralation between Fauji Foods and JS Investments

Assuming the 90 days trading horizon Fauji Foods is expected to under-perform the JS Investments. But the stock apears to be less risky and, when comparing its historical volatility, Fauji Foods is 1.45 times less risky than JS Investments. The stock trades about -0.03 of its potential returns per unit of risk. The JS Investments is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  2,280  in JS Investments on December 27, 2024 and sell it today you would lose (79.00) from holding JS Investments or give up 3.46% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	93.55%
Values	Daily Returns

Fauji Foods  vs.  JS Investments

Fauji Foods

Risk-Adjusted Performance

Very Weak

Over the last 90 days Fauji Foods has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Fauji Foods is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

JS Investments

Risk-Adjusted Performance

Very Weak

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

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

The idea behind Fauji Foods and JS Investments 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.