Correlation Between Fauji FoodsLtd and Adamjee Insurance

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Can any of the company-specific risk be diversified away by investing in both Fauji FoodsLtd and Adamjee Insurance 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 Fauji FoodsLtd and Adamjee Insurance into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Fauji FoodsLtd and Adamjee Insurance, you can compare the effects of market volatilities on Fauji FoodsLtd and Adamjee Insurance 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 Fauji FoodsLtd with a short position of Adamjee Insurance. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fauji FoodsLtd and Adamjee Insurance.

Diversification Opportunities for Fauji FoodsLtd and Adamjee Insurance

0.35
  Correlation Coefficient

Weak diversification

The 3 months correlation between Fauji and Adamjee is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Fauji FoodsLtd and Adamjee Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Adamjee Insurance and Fauji FoodsLtd 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 Fauji FoodsLtd are associated (or correlated) with Adamjee Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Adamjee Insurance has no effect on the direction of Fauji FoodsLtd i.e., Fauji FoodsLtd and Adamjee Insurance go up and down completely randomly.

Pair Corralation between Fauji FoodsLtd and Adamjee Insurance

Assuming the 90 days trading horizon Fauji FoodsLtd is expected to under-perform the Adamjee Insurance. In addition to that, Fauji FoodsLtd is 1.48 times more volatile than Adamjee Insurance. It trades about -0.26 of its total potential returns per unit of risk. Adamjee Insurance is currently generating about -0.11 per unit of volatility. If you would invest  3,757  in Adamjee Insurance on November 24, 2023 and sell it today you would lose (167.00) from holding Adamjee Insurance or give up 4.45% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy95.0%
ValuesDaily Returns

Fauji FoodsLtd  vs.  Adamjee Insurance

 Performance 
       Timeline  
Fauji FoodsLtd 

Risk-Adjusted Performance

3 of 100

 
Low
 
High
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in Fauji FoodsLtd are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak forward-looking signals, Fauji FoodsLtd may actually be approaching a critical reversion point that can send shares even higher in March 2024.
Adamjee Insurance 

Risk-Adjusted Performance

2 of 100

 
Low
 
High
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in Adamjee Insurance are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Adamjee Insurance is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Fauji FoodsLtd and Adamjee Insurance Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Fauji FoodsLtd and Adamjee Insurance

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

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