Correlation Between Unity Foods and Engro Fertilizers

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

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

Diversification Opportunities for Unity Foods and Engro Fertilizers

-0.43

Correlation Coefficient

Unity Foods  Engro Fertilizers

Very good diversification

The 3 months correlation between Unity and Engro is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Unity Foods and Engro Fertilizers in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Engro Fertilizers and Unity 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 Unity Foods are associated (or correlated) with Engro Fertilizers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Engro Fertilizers has no effect on the direction of Unity Foods i.e., Unity Foods and Engro Fertilizers go up and down completely randomly.

Pair Corralation between Unity Foods and Engro Fertilizers

Assuming the 90 days trading horizon Unity Foods is expected to under-perform the Engro Fertilizers. But the stock apears to be less risky and, when comparing its historical volatility, Unity Foods is 1.21 times less risky than Engro Fertilizers. The stock trades about -0.17 of its potential returns per unit of risk. The Engro Fertilizers is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  19,429  in Engro Fertilizers on December 24, 2024 and sell it today you would earn a total of  1,861  from holding Engro Fertilizers or generate 9.58% return on investment over 90 days.

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

Unity Foods  vs.  Engro Fertilizers

Unity Foods

Risk-Adjusted Performance

Very Weak

Over the last 90 days Unity Foods has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's forward indicators remain quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Engro Fertilizers

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Engro Fertilizers are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite quite weak technical and fundamental indicators, Engro Fertilizers may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Unity Foods and Engro Fertilizers

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

The idea behind Unity Foods and Engro Fertilizers 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.