Correlation Between Alliance Resource and TechnipFMC PLC

Can any of the company-specific risk be diversified away by investing in both Alliance Resource and TechnipFMC PLC 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 Alliance Resource and TechnipFMC PLC into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Alliance Resource Partners and TechnipFMC PLC, you can compare the effects of market volatilities on Alliance Resource and TechnipFMC PLC 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 Alliance Resource with a short position of TechnipFMC PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alliance Resource and TechnipFMC PLC.

Diversification Opportunities for Alliance Resource and TechnipFMC PLC

0.89

Correlation Coefficient

Alliance Resource  TechnipFMC PLC

Very poor diversification

The 3 months correlation between Alliance and TechnipFMC is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Alliance Resource Partners and TechnipFMC PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TechnipFMC PLC and Alliance Resource 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 Alliance Resource Partners are associated (or correlated) with TechnipFMC PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TechnipFMC PLC has no effect on the direction of Alliance Resource i.e., Alliance Resource and TechnipFMC PLC go up and down completely randomly.

Pair Corralation between Alliance Resource and TechnipFMC PLC

Given the investment horizon of 90 days Alliance Resource is expected to generate 2.55 times less return on investment than TechnipFMC PLC. In addition to that, Alliance Resource is 1.07 times more volatile than TechnipFMC PLC. It trades about 0.18 of its total potential returns per unit of risk. TechnipFMC PLC is currently generating about 0.48 per unit of volatility. If you would invest  2,634  in TechnipFMC PLC on September 5, 2024 and sell it today you would earn a total of  518.00  from holding TechnipFMC PLC or generate 19.67% return on investment over 90 days.

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

Alliance Resource Partners  vs.  TechnipFMC PLC

Alliance Resource

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Alliance Resource Partners are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain essential indicators, Alliance Resource reported solid returns over the last few months and may actually be approaching a breakup point.

TechnipFMC PLC

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in TechnipFMC PLC are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady basic indicators, TechnipFMC PLC demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Alliance Resource and TechnipFMC PLC

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

The idea behind Alliance Resource Partners and TechnipFMC PLC 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.