Correlation Between FMC and Colonial Coal

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Can any of the company-specific risk be diversified away by investing in both FMC and Colonial Coal 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 FMC and Colonial Coal into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between FMC Corporation and Colonial Coal International, you can compare the effects of market volatilities on FMC and Colonial Coal 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 FMC with a short position of Colonial Coal. Check out your portfolio center. Please also check ongoing floating volatility patterns of FMC and Colonial Coal.

Diversification Opportunities for FMC and Colonial Coal

0.79
  Correlation Coefficient

Poor diversification

The 3 months correlation between FMC and Colonial is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding FMC Corp. and Colonial Coal International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Colonial Coal Intern and FMC 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 FMC Corporation are associated (or correlated) with Colonial Coal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Colonial Coal Intern has no effect on the direction of FMC i.e., FMC and Colonial Coal go up and down completely randomly.

Pair Corralation between FMC and Colonial Coal

Considering the 90-day investment horizon FMC Corporation is expected to under-perform the Colonial Coal. But the stock apears to be less risky and, when comparing its historical volatility, FMC Corporation is 1.38 times less risky than Colonial Coal. The stock trades about -0.16 of its potential returns per unit of risk. The Colonial Coal International is currently generating about -0.1 of returns per unit of risk over similar time horizon. If you would invest  243.00  in Colonial Coal International on October 4, 2024 and sell it today you would lose (50.00) from holding Colonial Coal International or give up 20.58% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy98.39%
ValuesDaily Returns

FMC Corp.  vs.  Colonial Coal International

 Performance 
       Timeline  
FMC Corporation 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days FMC Corporation has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's primary indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.
Colonial Coal Intern 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Colonial Coal International has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in February 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

FMC and Colonial Coal Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with FMC and Colonial Coal

The main advantage of trading using opposite FMC and Colonial Coal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if FMC position performs unexpectedly, Colonial Coal 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 Colonial Coal will offset losses from the drop in Colonial Coal's long position.
The idea behind FMC Corporation and Colonial Coal 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.

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