Correlation Between National Foods and EFU General

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

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

Diversification Opportunities for National Foods and EFU General

-0.27

Correlation Coefficient

National Foods  EFU General

Very good diversification

The 3 months correlation between National and EFU is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding National Foods and EFU General Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EFU General Insurance and National 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 National Foods are associated (or correlated) with EFU General. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EFU General Insurance has no effect on the direction of National Foods i.e., National Foods and EFU General go up and down completely randomly.

Pair Corralation between National Foods and EFU General

Assuming the 90 days trading horizon National Foods is expected to generate 0.7 times more return on investment than EFU General. However, National Foods is 1.43 times less risky than EFU General. It trades about 0.13 of its potential returns per unit of risk. EFU General Insurance is currently generating about -0.05 per unit of risk. If you would invest  17,975  in National Foods on December 2, 2024 and sell it today you would earn a total of  2,819  from holding National Foods or generate 15.68% return on investment over 90 days.

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

National Foods  vs.  EFU General Insurance

National Foods

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in National Foods are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, National Foods sustained solid returns over the last few months and may actually be approaching a breakup point.

EFU General Insurance

Risk-Adjusted Performance

Very Weak

Over the last 90 days EFU General Insurance 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 National Foods and EFU General

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

The idea behind National Foods and EFU General 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.

Check out your portfolio center.

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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.