Correlation Between FC Investment and Herald Investment

Can any of the company-specific risk be diversified away by investing in both FC Investment and Herald Investment 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 Herald Investment 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 Herald Investment Trust, you can compare the effects of market volatilities on FC Investment and Herald Investment 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 Herald Investment. Check out your portfolio center. Please also check ongoing floating volatility patterns of FC Investment and Herald Investment.

Diversification Opportunities for FC Investment and Herald Investment

0.9

Correlation Coefficient

FC Investment  Herald Investment

Almost no diversification

The 3 months correlation between FCIT and Herald is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding FC Investment Trust and Herald Investment Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Herald Investment Trust 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 Herald Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Herald Investment Trust has no effect on the direction of FC Investment i.e., FC Investment and Herald Investment go up and down completely randomly.

Pair Corralation between FC Investment and Herald Investment

Assuming the 90 days trading horizon FC Investment is expected to generate 1.35 times less return on investment than Herald Investment. But when comparing it to its historical volatility, FC Investment Trust is 1.23 times less risky than Herald Investment. It trades about 0.06 of its potential returns per unit of risk. Herald Investment Trust is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  178,000  in Herald Investment Trust on September 15, 2024 and sell it today you would earn a total of  71,500  from holding Herald Investment Trust or generate 40.17% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	99.6%
Values	Daily Returns

FC Investment Trust  vs.  Herald Investment Trust

FC Investment Trust

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in FC Investment Trust are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, FC Investment may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Herald Investment Trust

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Herald Investment Trust are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Herald Investment exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with FC Investment and Herald Investment

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

The idea behind FC Investment Trust and Herald Investment Trust 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.