Correlation Between Ghani Chemical and Fauji Foods

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

By analyzing existing cross correlation between Ghani Chemical Industries and Fauji Foods, you can compare the effects of market volatilities on Ghani Chemical and Fauji Foods 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 Ghani Chemical with a short position of Fauji Foods. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ghani Chemical and Fauji Foods.

Diversification Opportunities for Ghani Chemical and Fauji Foods

-0.58

Correlation Coefficient

Ghani Chemical  Fauji Foods

Excellent diversification

The 3 months correlation between Ghani and Fauji is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Ghani Chemical Industries and Fauji Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fauji Foods and Ghani Chemical 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 Ghani Chemical Industries are associated (or correlated) with Fauji Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fauji Foods has no effect on the direction of Ghani Chemical i.e., Ghani Chemical and Fauji Foods go up and down completely randomly.

Pair Corralation between Ghani Chemical and Fauji Foods

Assuming the 90 days trading horizon Ghani Chemical Industries is expected to generate 1.68 times more return on investment than Fauji Foods. However, Ghani Chemical is 1.68 times more volatile than Fauji Foods. It trades about 0.07 of its potential returns per unit of risk. Fauji Foods is currently generating about -0.03 per unit of risk. If you would invest  1,733  in Ghani Chemical Industries on December 29, 2024 and sell it today you would earn a total of  246.00  from holding Ghani Chemical Industries or generate 14.2% return on investment over 90 days.

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

Ghani Chemical Industries  vs.  Fauji Foods

Ghani Chemical Industries

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Ghani Chemical Industries are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting basic indicators, Ghani Chemical sustained solid returns over the last few months and may actually be approaching a breakup point.

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.

Pair Trading with Ghani Chemical and Fauji Foods

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

The idea behind Ghani Chemical Industries and Fauji Foods 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.