Correlation Between Keurig Dr and Fortescue Metals

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

By analyzing existing cross correlation between Keurig Dr Pepper and Fortescue Metals Group, you can compare the effects of market volatilities on Keurig Dr and Fortescue Metals 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 Keurig Dr with a short position of Fortescue Metals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Keurig Dr and Fortescue Metals.

Diversification Opportunities for Keurig Dr and Fortescue Metals

0.62

Correlation Coefficient

Keurig Dr  Fortescue Metals

Poor diversification

The 3 months correlation between Keurig and Fortescue is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Keurig Dr Pepper and Fortescue Metals Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fortescue Metals and Keurig Dr 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 Keurig Dr Pepper are associated (or correlated) with Fortescue Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fortescue Metals has no effect on the direction of Keurig Dr i.e., Keurig Dr and Fortescue Metals go up and down completely randomly.

Pair Corralation between Keurig Dr and Fortescue Metals

Assuming the 90 days horizon Keurig Dr Pepper is expected to under-perform the Fortescue Metals. But the stock apears to be less risky and, when comparing its historical volatility, Keurig Dr Pepper is 1.49 times less risky than Fortescue Metals. The stock trades about -0.04 of its potential returns per unit of risk. The Fortescue Metals Group is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  1,106  in Fortescue Metals Group on October 25, 2024 and sell it today you would earn a total of  45.00  from holding Fortescue Metals Group or generate 4.07% return on investment over 90 days.

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

Keurig Dr Pepper  vs.  Fortescue Metals Group

Keurig Dr Pepper

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Keurig Dr Pepper has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Keurig Dr is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Fortescue Metals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fortescue Metals Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Fortescue Metals is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Keurig Dr and Fortescue Metals

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

The idea behind Keurig Dr Pepper and Fortescue Metals Group 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.