Correlation Between FC Investment and Diversified Energy

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

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

Diversification Opportunities for FC Investment and Diversified Energy

0.92

Correlation Coefficient

FC Investment  Diversified Energy

Almost no diversification

The 3 months correlation between FCIT and Diversified is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding FC Investment Trust and Diversified Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diversified Energy and FC Investment 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 FC Investment Trust are associated (or correlated) with Diversified Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diversified Energy has no effect on the direction of FC Investment i.e., FC Investment and Diversified Energy go up and down completely randomly.

Pair Corralation between FC Investment and Diversified Energy

Assuming the 90 days trading horizon FC Investment Trust is expected to under-perform the Diversified Energy. But the stock apears to be less risky and, when comparing its historical volatility, FC Investment Trust is 4.47 times less risky than Diversified Energy. The stock trades about -0.05 of its potential returns per unit of risk. The Diversified Energy is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  127,771  in Diversified Energy on September 25, 2024 and sell it today you would lose (1,871) from holding Diversified Energy or give up 1.46% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	95.45%
Values	Daily Returns

FC Investment Trust  vs.  Diversified Energy

FC Investment Trust

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in FC Investment Trust are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, FC Investment may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Diversified Energy

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Diversified Energy are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Diversified Energy exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with FC Investment and Diversified Energy

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

The idea behind FC Investment Trust and Diversified Energy 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.

Check out your portfolio center.

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 Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .