Correlation Between Fresenius Medical and Devon Energy

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

By analyzing existing cross correlation between Fresenius Medical Care and Devon Energy, you can compare the effects of market volatilities on Fresenius Medical and Devon Energy 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 Fresenius Medical with a short position of Devon Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fresenius Medical and Devon Energy.

Diversification Opportunities for Fresenius Medical and Devon Energy

0.49

Correlation Coefficient

Fresenius Medical  Devon Energy

Very weak diversification

The 3 months correlation between Fresenius and Devon is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Fresenius Medical Care and Devon Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Devon Energy and Fresenius Medical 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 Fresenius Medical Care are associated (or correlated) with Devon Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Devon Energy has no effect on the direction of Fresenius Medical i.e., Fresenius Medical and Devon Energy go up and down completely randomly.

Pair Corralation between Fresenius Medical and Devon Energy

Assuming the 90 days trading horizon Fresenius Medical Care is expected to generate 0.24 times more return on investment than Devon Energy. However, Fresenius Medical Care is 4.25 times less risky than Devon Energy. It trades about -0.13 of its potential returns per unit of risk. Devon Energy is currently generating about -0.07 per unit of risk. If you would invest  11,322  in Fresenius Medical Care on October 7, 2024 and sell it today you would lose (377.00) from holding Fresenius Medical Care or give up 3.33% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Fresenius Medical Care  vs.  Devon Energy

Fresenius Medical Care

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fresenius Medical Care has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Fresenius Medical is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Devon Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Devon Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Fresenius Medical and Devon Energy

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

The idea behind Fresenius Medical Care and Devon Energy 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.