Correlation Between FNB Government and FNB ETN

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

By analyzing existing cross correlation between FNB Government Inflation and FNB ETN BERKSHQ, you can compare the effects of market volatilities on FNB Government and FNB ETN 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 FNB Government with a short position of FNB ETN. Check out your portfolio center. Please also check ongoing floating volatility patterns of FNB Government and FNB ETN.

Diversification Opportunities for FNB Government and FNB ETN

0.66

Correlation Coefficient

FNB Government  FNB ETN

Poor diversification

The 3 months correlation between FNB and FNB is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding FNB Government Inflation and FNB ETN BERKSHQ in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FNB ETN BERKSHQ and FNB Government 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 FNB Government Inflation are associated (or correlated) with FNB ETN. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FNB ETN BERKSHQ has no effect on the direction of FNB Government i.e., FNB Government and FNB ETN go up and down completely randomly.

Pair Corralation between FNB Government and FNB ETN

Assuming the 90 days trading horizon FNB Government is expected to generate 13.86 times less return on investment than FNB ETN. But when comparing it to its historical volatility, FNB Government Inflation is 3.33 times less risky than FNB ETN. It trades about 0.05 of its potential returns per unit of risk. FNB ETN BERKSHQ is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  216,100  in FNB ETN BERKSHQ on December 22, 2024 and sell it today you would earn a total of  37,300  from holding FNB ETN BERKSHQ or generate 17.26% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	93.55%
Values	Daily Returns

FNB Government Inflation  vs.  FNB ETN BERKSHQ

FNB Government Inflation

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in FNB Government Inflation are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong forward indicators, FNB Government is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

FNB ETN BERKSHQ

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in FNB ETN BERKSHQ are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, FNB ETN sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with FNB Government and FNB ETN

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

The idea behind FNB Government Inflation and FNB ETN BERKSHQ 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.