Correlation Between Fauji Foods and United Bank

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

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

Diversification Opportunities for Fauji Foods and United Bank

-0.57

Correlation Coefficient

Fauji Foods  United Bank

Excellent diversification

The 3 months correlation between Fauji and United is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding Fauji Foods and United Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Bank 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 United Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Bank has no effect on the direction of Fauji Foods i.e., Fauji Foods and United Bank go up and down completely randomly.

Pair Corralation between Fauji Foods and United Bank

Assuming the 90 days trading horizon Fauji Foods is expected to under-perform the United Bank. In addition to that, Fauji Foods is 1.4 times more volatile than United Bank. It trades about -0.03 of its total potential returns per unit of risk. United Bank is currently generating about 0.11 per unit of volatility. If you would invest  36,801  in United Bank on December 30, 2024 and sell it today you would earn a total of  4,288  from holding United Bank or generate 11.65% return on investment over 90 days.

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

Fauji Foods  vs.  United Bank

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.

United Bank

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in United Bank are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, United Bank may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Fauji Foods and United Bank

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

The idea behind Fauji Foods and United Bank 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.