Correlation Between FACT II and Flexible Solutions

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

By analyzing existing cross correlation between FACT II Acquisition and Flexible Solutions International, you can compare the effects of market volatilities on FACT II and Flexible Solutions 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 FACT II with a short position of Flexible Solutions. Check out your portfolio center. Please also check ongoing floating volatility patterns of FACT II and Flexible Solutions.

Diversification Opportunities for FACT II and Flexible Solutions

-0.08

Correlation Coefficient

FACT II  Flexible Solutions

Good diversification

The 3 months correlation between FACT and Flexible is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding FACT II Acquisition and Flexible Solutions Internation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Flexible Solutions and FACT II 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 FACT II Acquisition are associated (or correlated) with Flexible Solutions. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Flexible Solutions has no effect on the direction of FACT II i.e., FACT II and Flexible Solutions go up and down completely randomly.

Pair Corralation between FACT II and Flexible Solutions

Assuming the 90 days horizon FACT II Acquisition is expected to generate 35.46 times more return on investment than Flexible Solutions. However, FACT II is 35.46 times more volatile than Flexible Solutions International. It trades about 0.28 of its potential returns per unit of risk. Flexible Solutions International is currently generating about 0.13 per unit of risk. If you would invest  0.00  in FACT II Acquisition on October 25, 2024 and sell it today you would earn a total of  18.00  from holding FACT II Acquisition or generate 9.223372036854776E16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	21.67%
Values	Daily Returns

FACT II Acquisition  vs.  Flexible Solutions Internation

FACT II Acquisition

Risk-Adjusted Performance

0 of 100

Solid

Over the last 90 days FACT II Acquisition has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly inconsistent basic indicators, FACT II showed solid returns over the last few months and may actually be approaching a breakup point.

Flexible Solutions

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Flexible Solutions International are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady basic indicators, Flexible Solutions demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with FACT II and Flexible Solutions

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

The idea behind FACT II Acquisition and Flexible Solutions International 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.