Correlation Between FMC and Essentra Plc

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

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

Diversification Opportunities for FMC and Essentra Plc

0.66

Correlation Coefficient

FMC  Essentra Plc

Poor diversification

The 3 months correlation between FMC and Essentra is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding FMC Corp. and Essentra plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Essentra plc 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 Essentra Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Essentra plc has no effect on the direction of FMC i.e., FMC and Essentra Plc go up and down completely randomly.

Pair Corralation between FMC and Essentra Plc

Considering the 90-day investment horizon FMC Corporation is expected to generate 0.87 times more return on investment than Essentra Plc. However, FMC Corporation is 1.15 times less risky than Essentra Plc. It trades about 0.32 of its potential returns per unit of risk. Essentra plc is currently generating about -0.25 per unit of risk. If you would invest  4,729  in FMC Corporation on October 20, 2024 and sell it today you would earn a total of  614.00  from holding FMC Corporation or generate 12.98% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	85.0%
Values	Daily Returns

FMC Corp.  vs.  Essentra plc

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.

Essentra plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Essentra plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with FMC and Essentra Plc

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

The idea behind FMC Corporation and Essentra plc 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.