Correlation Between Fauji Foods and KOT Addu

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

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

Diversification Opportunities for Fauji Foods and KOT Addu

0.21

Correlation Coefficient

Fauji Foods  KOT Addu

Modest diversification

The 3 months correlation between Fauji and KOT is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Fauji Foods and KOT Addu Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KOT Addu Power 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 KOT Addu. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KOT Addu Power has no effect on the direction of Fauji Foods i.e., Fauji Foods and KOT Addu go up and down completely randomly.

Pair Corralation between Fauji Foods and KOT Addu

Assuming the 90 days trading horizon Fauji Foods is expected to under-perform the KOT Addu. In addition to that, Fauji Foods is 2.53 times more volatile than KOT Addu Power. It trades about -0.03 of its total potential returns per unit of risk. KOT Addu Power is currently generating about 0.04 per unit of volatility. If you would invest  3,311  in KOT Addu Power on December 30, 2024 and sell it today you would earn a total of  71.00  from holding KOT Addu Power or generate 2.14% return on investment over 90 days.

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

Fauji Foods  vs.  KOT Addu Power

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.

KOT Addu Power

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in KOT Addu Power are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, KOT Addu is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Fauji Foods and KOT Addu

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

The idea behind Fauji Foods and KOT Addu Power 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.