Correlation Between Fauji Foods and Shaheen Insurance

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

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

Diversification Opportunities for Fauji Foods and Shaheen Insurance

0.53

Correlation Coefficient

Fauji Foods  Shaheen Insurance

Very weak diversification

The 3 months correlation between Fauji and Shaheen is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Fauji Foods and Shaheen Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shaheen Insurance 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 Shaheen Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shaheen Insurance has no effect on the direction of Fauji Foods i.e., Fauji Foods and Shaheen Insurance go up and down completely randomly.

Pair Corralation between Fauji Foods and Shaheen Insurance

Assuming the 90 days trading horizon Fauji Foods is expected to under-perform the Shaheen Insurance. But the stock apears to be less risky and, when comparing its historical volatility, Fauji Foods is 1.63 times less risky than Shaheen Insurance. The stock trades about -0.14 of its potential returns per unit of risk. The Shaheen Insurance is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  655.00  in Shaheen Insurance on December 4, 2024 and sell it today you would earn a total of  26.00  from holding Shaheen Insurance or generate 3.97% return on investment over 90 days.

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

Fauji Foods  vs.  Shaheen Insurance

Fauji Foods

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Fauji Foods are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Fauji Foods may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Shaheen Insurance

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Shaheen Insurance are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shaheen Insurance sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Fauji Foods and Shaheen Insurance

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

The idea behind Fauji Foods and Shaheen Insurance 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.