Correlation Between Air Link and Fauji Foods

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

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

Diversification Opportunities for Air Link and Fauji Foods

0.55

Correlation Coefficient

Air Link  Fauji Foods

Very weak diversification

The 3 months correlation between Air and Fauji is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Air Link Communication and Fauji Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fauji Foods and Air Link 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 Air Link Communication 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 Air Link i.e., Air Link and Fauji Foods go up and down completely randomly.

Pair Corralation between Air Link and Fauji Foods

Assuming the 90 days trading horizon Air Link is expected to generate 1.36 times less return on investment than Fauji Foods. In addition to that, Air Link is 1.14 times more volatile than Fauji Foods. It trades about 0.15 of its total potential returns per unit of risk. Fauji Foods is currently generating about 0.22 per unit of volatility. If you would invest  915.00  in Fauji Foods on September 12, 2024 and sell it today you would earn a total of  455.00  from holding Fauji Foods or generate 49.73% return on investment over 90 days.

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

Air Link Communication  vs.  Fauji Foods

Air Link Communication

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Air Link Communication are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite quite weak forward indicators, Air Link disclosed solid returns over the last few months and may actually be approaching a breakup point.

Fauji Foods

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Fauji Foods are ranked lower than 17 (%) 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 Air Link and Fauji Foods

The main advantage of trading using opposite Air Link and Fauji Foods positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Air Link 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 Air Link Communication 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.