Correlation Between DOCDATA and Freeport McMoRan

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

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

Diversification Opportunities for DOCDATA and Freeport McMoRan

0.88

Correlation Coefficient

DOCDATA  Freeport McMoRan

Very poor diversification

The 3 months correlation between DOCDATA and Freeport is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding DOCDATA and Freeport McMoRan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Freeport McMoRan and DOCDATA 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 DOCDATA are associated (or correlated) with Freeport McMoRan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Freeport McMoRan has no effect on the direction of DOCDATA i.e., DOCDATA and Freeport McMoRan go up and down completely randomly.

Pair Corralation between DOCDATA and Freeport McMoRan

Assuming the 90 days trading horizon DOCDATA is expected to generate 1.55 times more return on investment than Freeport McMoRan. However, DOCDATA is 1.55 times more volatile than Freeport McMoRan. It trades about -0.03 of its potential returns per unit of risk. Freeport McMoRan is currently generating about -0.27 per unit of risk. If you would invest  41.00  in DOCDATA on October 6, 2024 and sell it today you would lose (1.00) from holding DOCDATA or give up 2.44% of portfolio value over 90 days.

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

DOCDATA  vs.  Freeport McMoRan

DOCDATA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days DOCDATA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Freeport McMoRan

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Freeport McMoRan 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 primary indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with DOCDATA and Freeport McMoRan

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

The idea behind DOCDATA and Freeport McMoRan 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.