Correlation Between Fauji Foods and Pak Gulf

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

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

Diversification Opportunities for Fauji Foods and Pak Gulf

0.59

Correlation Coefficient

Fauji Foods  Pak Gulf

Very weak diversification

The 3 months correlation between Fauji and Pak is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Fauji Foods and Pak Gulf Leasing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pak Gulf 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 Pak Gulf. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pak Gulf Leasing has no effect on the direction of Fauji Foods i.e., Fauji Foods and Pak Gulf go up and down completely randomly.

Pair Corralation between Fauji Foods and Pak Gulf

Assuming the 90 days trading horizon Fauji Foods is expected to generate 0.4 times more return on investment than Pak Gulf. However, Fauji Foods is 2.5 times less risky than Pak Gulf. It trades about -0.03 of its potential returns per unit of risk. Pak Gulf Leasing is currently generating about -0.03 per unit of risk. If you would invest  1,726  in Fauji Foods on December 29, 2024 and sell it today you would lose (112.00) from holding Fauji Foods or give up 6.49% of portfolio value over 90 days.

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

Fauji Foods  vs.  Pak Gulf Leasing

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 current stock price agitation, may contribute to short-term losses for the retail investors.

Pak Gulf Leasing

Risk-Adjusted Performance

Very Weak

Over the last 90 days Pak Gulf Leasing has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Fauji Foods and Pak Gulf

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

The idea behind Fauji Foods and Pak Gulf 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.

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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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..