Correlation Between FMC and China Water

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

By analyzing existing cross correlation between FMC Corporation and China Water Affairs, you can compare the effects of market volatilities on FMC and China Water 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 China Water. Check out your portfolio center. Please also check ongoing floating volatility patterns of FMC and China Water.

Diversification Opportunities for FMC and China Water

0.0

Correlation Coefficient

FMC  China Water

Pay attention - limited upside

The 3 months correlation between FMC and China is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding FMC Corp. and China Water Affairs in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Water Affairs 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 China Water. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Water Affairs has no effect on the direction of FMC i.e., FMC and China Water go up and down completely randomly.

Pair Corralation between FMC and China Water

Considering the 90-day investment horizon FMC Corporation is expected to under-perform the China Water. But the stock apears to be less risky and, when comparing its historical volatility, FMC Corporation is 1.73 times less risky than China Water. The stock trades about -0.05 of its potential returns per unit of risk. The China Water Affairs is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  75.00  in China Water Affairs on October 21, 2024 and sell it today you would lose (4.00) from holding China Water Affairs or give up 5.33% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	52.99%
Values	Daily Returns

FMC Corp.  vs.  China Water Affairs

FMC Corporation

Risk-Adjusted Performance

0 of 100

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 latest fragile performance, the Stock's primary indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

China Water Affairs

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Water Affairs has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, China Water is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with FMC and China Water

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

The idea behind FMC Corporation and China Water Affairs 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.