Correlation Between Shaheen Insurance and Fauji Foods

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

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

Diversification Opportunities for Shaheen Insurance and Fauji Foods

-0.12

Correlation Coefficient

Shaheen Insurance  Fauji Foods

Good diversification

The 3 months correlation between Shaheen and Fauji is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding Shaheen Insurance and Fauji Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fauji Foods and Shaheen Insurance 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 Shaheen Insurance 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 Shaheen Insurance i.e., Shaheen Insurance and Fauji Foods go up and down completely randomly.

Pair Corralation between Shaheen Insurance and Fauji Foods

Assuming the 90 days trading horizon Shaheen Insurance is expected to generate 1.6 times less return on investment than Fauji Foods. In addition to that, Shaheen Insurance is 1.15 times more volatile than Fauji Foods. It trades about 0.05 of its total potential returns per unit of risk. Fauji Foods is currently generating about 0.09 per unit of volatility. If you would invest  1,449  in Fauji Foods on December 22, 2024 and sell it today you would earn a total of  212.00  from holding Fauji Foods or generate 14.63% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	96.83%
Values	Daily Returns

Shaheen Insurance  vs.  Fauji Foods

Shaheen Insurance

Risk-Adjusted Performance

Insignificant

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

Fauji Foods

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Fauji Foods are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Fauji Foods reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shaheen Insurance and Fauji Foods

The main advantage of trading using opposite Shaheen Insurance and Fauji Foods positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Shaheen Insurance 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 Shaheen Insurance 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.