Correlation Between Fomento Economico and Expand Energy

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

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

Diversification Opportunities for Fomento Economico and Expand Energy

-0.94

Correlation Coefficient

Fomento Economico  Expand Energy

Pay attention - limited upside

The 3 months correlation between Fomento and Expand is -0.94. Overlapping area represents the amount of risk that can be diversified away by holding Fomento Economico Mexicano and Expand Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Expand Energy and Fomento Economico 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 Fomento Economico Mexicano are associated (or correlated) with Expand Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Expand Energy has no effect on the direction of Fomento Economico i.e., Fomento Economico and Expand Energy go up and down completely randomly.

Pair Corralation between Fomento Economico and Expand Energy

Considering the 90-day investment horizon Fomento Economico Mexicano is expected to under-perform the Expand Energy. But the stock apears to be less risky and, when comparing its historical volatility, Fomento Economico Mexicano is 1.36 times less risky than Expand Energy. The stock trades about -0.13 of its potential returns per unit of risk. The Expand Energy is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  7,799  in Expand Energy on September 20, 2024 and sell it today you would earn a total of  1,876  from holding Expand Energy or generate 24.05% return on investment over 90 days.

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

Fomento Economico Mexicano  vs.  Expand Energy

Fomento Economico

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fomento Economico Mexicano has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's primary indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Expand Energy

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Expand Energy are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Expand Energy exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Fomento Economico and Expand Energy

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

The idea behind Fomento Economico Mexicano and Expand 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.