Correlation Between Sitara Chemical and Fauji Foods

Can any of the company-specific risk be diversified away by investing in both Sitara 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 Sitara 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 Sitara Chemical Industries and Fauji Foods, you can compare the effects of market volatilities on Sitara 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 Sitara Chemical with a short position of Fauji Foods. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sitara Chemical and Fauji Foods.

Diversification Opportunities for Sitara Chemical and Fauji Foods

0.69

Correlation Coefficient

Sitara Chemical  Fauji Foods

Poor diversification

The 3 months correlation between Sitara and Fauji is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Sitara 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 Sitara 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 Sitara 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 Sitara Chemical i.e., Sitara Chemical and Fauji Foods go up and down completely randomly.

Pair Corralation between Sitara Chemical and Fauji Foods

Assuming the 90 days trading horizon Sitara Chemical is expected to generate 1.61 times less return on investment than Fauji Foods. But when comparing it to its historical volatility, Sitara Chemical Industries is 1.01 times less risky than Fauji Foods. It trades about 0.06 of its potential returns per unit of risk. Fauji Foods is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  459.00  in Fauji Foods on September 18, 2024 and sell it today you would earn a total of  1,030  from holding Fauji Foods or generate 224.4% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	73.55%
Values	Daily Returns

Sitara Chemical Industries  vs.  Fauji Foods

Sitara Chemical Indu

Risk-Adjusted Performance

5 of 100

Modest

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

Fauji Foods

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Fauji Foods are ranked lower than 21 (%) 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 Sitara Chemical and Fauji Foods

The main advantage of trading using opposite Sitara Chemical and Fauji Foods positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sitara 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 Sitara 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.

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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.