Correlation Between Arabian Food and Grand Investment

Can any of the company-specific risk be diversified away by investing in both Arabian Food and Grand Investment 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 Arabian Food and Grand Investment into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Arabian Food Industries and Grand Investment Capital, you can compare the effects of market volatilities on Arabian Food and Grand Investment 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 Arabian Food with a short position of Grand Investment. Check out your portfolio center. Please also check ongoing floating volatility patterns of Arabian Food and Grand Investment.

Diversification Opportunities for Arabian Food and Grand Investment

0.26

Correlation Coefficient

Arabian Food  Grand Investment

Modest diversification

The 3 months correlation between Arabian and Grand is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Arabian Food Industries and Grand Investment Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Grand Investment Capital and Arabian Food 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 Arabian Food Industries are associated (or correlated) with Grand Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Grand Investment Capital has no effect on the direction of Arabian Food i.e., Arabian Food and Grand Investment go up and down completely randomly.

Pair Corralation between Arabian Food and Grand Investment

Assuming the 90 days trading horizon Arabian Food Industries is expected to generate 1.52 times more return on investment than Grand Investment. However, Arabian Food is 1.52 times more volatile than Grand Investment Capital. It trades about 0.26 of its potential returns per unit of risk. Grand Investment Capital is currently generating about -0.11 per unit of risk. If you would invest  1,494  in Arabian Food Industries on September 15, 2024 and sell it today you would earn a total of  1,207  from holding Arabian Food Industries or generate 80.79% return on investment over 90 days.

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

Arabian Food Industries  vs.  Grand Investment Capital

Arabian Food Industries

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Arabian Food Industries are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, Arabian Food reported solid returns over the last few months and may actually be approaching a breakup point.

Grand Investment Capital

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Grand Investment Capital has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Arabian Food and Grand Investment

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

The idea behind Arabian Food Industries and Grand Investment Capital 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.