Correlation Between Fomento Econmico and Companhia Siderrgica

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

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

Diversification Opportunities for Fomento Econmico and Companhia Siderrgica

0.5

Correlation Coefficient

Fomento Econmico  Companhia Siderrgica

Very weak diversification

The 3 months correlation between Fomento and Companhia is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Fomento Econmico Mexicano, and Companhia Siderrgica Nacional in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Companhia Siderrgica and Fomento Econmico 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 Econmico Mexicano, are associated (or correlated) with Companhia Siderrgica. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Companhia Siderrgica has no effect on the direction of Fomento Econmico i.e., Fomento Econmico and Companhia Siderrgica go up and down completely randomly.

Pair Corralation between Fomento Econmico and Companhia Siderrgica

Assuming the 90 days trading horizon Fomento Econmico Mexicano, is expected to generate 0.49 times more return on investment than Companhia Siderrgica. However, Fomento Econmico Mexicano, is 2.05 times less risky than Companhia Siderrgica. It trades about -0.09 of its potential returns per unit of risk. Companhia Siderrgica Nacional is currently generating about -0.15 per unit of risk. If you would invest  54,824  in Fomento Econmico Mexicano, on October 24, 2024 and sell it today you would lose (4,506) from holding Fomento Econmico Mexicano, or give up 8.22% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.28%
Values	Daily Returns

Fomento Econmico Mexicano,  vs.  Companhia Siderrgica Nacional

Fomento Econmico Mex

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fomento Econmico Mexicano, 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.

Companhia Siderrgica

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Companhia Siderrgica Nacional has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Fomento Econmico and Companhia Siderrgica

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

The idea behind Fomento Econmico Mexicano, and Companhia Siderrgica Nacional 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.