Correlation Between FCS Software and Archean Chemical

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

By analyzing existing cross correlation between FCS Software Solutions and Archean Chemical Industries, you can compare the effects of market volatilities on FCS Software and Archean Chemical 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 FCS Software with a short position of Archean Chemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of FCS Software and Archean Chemical.

Diversification Opportunities for FCS Software and Archean Chemical

0.67

Correlation Coefficient

FCS Software  Archean Chemical

Poor diversification

The 3 months correlation between FCS and Archean is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding FCS Software Solutions and Archean Chemical Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Archean Chemical Ind and FCS Software 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 FCS Software Solutions are associated (or correlated) with Archean Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Archean Chemical Ind has no effect on the direction of FCS Software i.e., FCS Software and Archean Chemical go up and down completely randomly.

Pair Corralation between FCS Software and Archean Chemical

Assuming the 90 days trading horizon FCS Software Solutions is expected to under-perform the Archean Chemical. In addition to that, FCS Software is 1.28 times more volatile than Archean Chemical Industries. It trades about -0.03 of its total potential returns per unit of risk. Archean Chemical Industries is currently generating about -0.03 per unit of volatility. If you would invest  68,000  in Archean Chemical Industries on October 9, 2024 and sell it today you would lose (3,805) from holding Archean Chemical Industries or give up 5.6% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.39%
Values	Daily Returns

FCS Software Solutions  vs.  Archean Chemical Industries

FCS Software Solutions

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days FCS Software Solutions has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, FCS Software is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Archean Chemical Ind

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Archean Chemical Industries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Archean Chemical is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with FCS Software and Archean Chemical

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

The idea behind FCS Software Solutions and Archean Chemical Industries 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.