Correlation Between Fomento Economico and Universal

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

Diversification Opportunities for Fomento Economico and Universal

-0.58

Correlation Coefficient

Fomento Economico  Universal

Excellent diversification

The 3 months correlation between Fomento and Universal is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Fomento Economico Mexicano and Universal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Universal 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 Universal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Universal has no effect on the direction of Fomento Economico i.e., Fomento Economico and Universal go up and down completely randomly.

Pair Corralation between Fomento Economico and Universal

Considering the 90-day investment horizon Fomento Economico Mexicano is expected to under-perform the Universal. But the stock apears to be less risky and, when comparing its historical volatility, Fomento Economico Mexicano is 1.3 times less risky than Universal. The stock trades about -0.46 of its potential returns per unit of risk. The Universal is currently generating about 0.39 of returns per unit of risk over similar time horizon. If you would invest  4,979  in Universal on August 30, 2024 and sell it today you would earn a total of  685.00  from holding Universal or generate 13.76% return on investment over 90 days.

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

Fomento Economico Mexicano  vs.  Universal

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 abnormal performance in the last few months, the Stock's primary indicators remain fairly strong which may send shares a bit higher in December 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Universal

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Universal are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Universal may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Fomento Economico and Universal

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

The idea behind Fomento Economico Mexicano and Universal 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.

Check out your portfolio center.

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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.