Correlation Between FMC and SSE PLC

Can any of the company-specific risk be diversified away by investing in both FMC and SSE 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 SSE 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 SSE PLC ADR, you can compare the effects of market volatilities on FMC and SSE 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 SSE PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of FMC and SSE PLC.

Diversification Opportunities for FMC and SSE PLC

0.86

Correlation Coefficient

FMC  SSE PLC

Very poor diversification

The 3 months correlation between FMC and SSE is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding FMC Corp. and SSE PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SSE PLC ADR 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 SSE PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SSE PLC ADR has no effect on the direction of FMC i.e., FMC and SSE PLC go up and down completely randomly.

Pair Corralation between FMC and SSE PLC

Considering the 90-day investment horizon FMC Corporation is expected to under-perform the SSE PLC. In addition to that, FMC is 1.79 times more volatile than SSE PLC ADR. It trades about -0.06 of its total potential returns per unit of risk. SSE PLC ADR is currently generating about 0.02 per unit of volatility. If you would invest  1,727  in SSE PLC ADR on October 4, 2024 and sell it today you would earn a total of  183.00  from holding SSE PLC ADR or generate 10.6% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.0%
Values	Daily Returns

FMC Corp.  vs.  SSE PLC ADR

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.

SSE PLC ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SSE PLC ADR has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with FMC and SSE PLC

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

The idea behind FMC Corporation and SSE PLC ADR 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.