Correlation Between FMC and Health Care

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

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

Diversification Opportunities for FMC and Health Care

0.62

Correlation Coefficient

FMC  Health Care

Poor diversification

The 3 months correlation between FMC and Health is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding FMC Corp. and Health Care Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Health Care Services 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 Health Care. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Health Care Services has no effect on the direction of FMC i.e., FMC and Health Care go up and down completely randomly.

Pair Corralation between FMC and Health Care

Considering the 90-day investment horizon FMC Corporation is expected to generate 0.88 times more return on investment than Health Care. However, FMC Corporation is 1.14 times less risky than Health Care. It trades about -0.39 of its potential returns per unit of risk. Health Care Services is currently generating about -0.47 per unit of risk. If you would invest  5,830  in FMC Corporation on October 5, 2024 and sell it today you would lose (977.00) from holding FMC Corporation or give up 16.76% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.24%
Values	Daily Returns

FMC Corp.  vs.  Health Care Services

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 fragile 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.

Health Care Services

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Health Care Services has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's fundamental indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with FMC and Health Care

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

The idea behind FMC Corporation and Health Care Services 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.