Correlation Between FEC Resources and Spindletop

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

By analyzing existing cross correlation between FEC Resources and Spindletop OG, you can compare the effects of market volatilities on FEC Resources and Spindletop 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 FEC Resources with a short position of Spindletop. Check out your portfolio center. Please also check ongoing floating volatility patterns of FEC Resources and Spindletop.

Diversification Opportunities for FEC Resources and Spindletop

0.37

Correlation Coefficient

FEC Resources  Spindletop

Weak diversification

The 3 months correlation between FEC and Spindletop is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding FEC Resources and Spindletop OG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Spindletop OG and FEC Resources 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 FEC Resources are associated (or correlated) with Spindletop. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Spindletop OG has no effect on the direction of FEC Resources i.e., FEC Resources and Spindletop go up and down completely randomly.

Pair Corralation between FEC Resources and Spindletop

Assuming the 90 days horizon FEC Resources is expected to generate 2.97 times more return on investment than Spindletop. However, FEC Resources is 2.97 times more volatile than Spindletop OG. It trades about 0.04 of its potential returns per unit of risk. Spindletop OG is currently generating about -0.12 per unit of risk. If you would invest  0.45  in FEC Resources on September 23, 2024 and sell it today you would lose (0.18) from holding FEC Resources or give up 40.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.48%
Values	Daily Returns

FEC Resources  vs.  Spindletop OG

FEC Resources

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in FEC Resources are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, FEC Resources reported solid returns over the last few months and may actually be approaching a breakup point.

Spindletop OG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Spindletop OG has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with FEC Resources and Spindletop

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

The idea behind FEC Resources and Spindletop OG 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.