Correlation Between Fountain and Floridienne

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

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

Diversification Opportunities for Fountain and Floridienne

0.15

Correlation Coefficient

Fountain  Floridienne

Average diversification

The 3 months correlation between Fountain and Floridienne is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Fountain and Floridienne in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Floridienne and Fountain 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 Fountain are associated (or correlated) with Floridienne. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Floridienne has no effect on the direction of Fountain i.e., Fountain and Floridienne go up and down completely randomly.

Pair Corralation between Fountain and Floridienne

Assuming the 90 days trading horizon Fountain is expected to generate 1.79 times more return on investment than Floridienne. However, Fountain is 1.79 times more volatile than Floridienne. It trades about 0.08 of its potential returns per unit of risk. Floridienne is currently generating about -0.02 per unit of risk. If you would invest  132.00  in Fountain on December 30, 2024 and sell it today you would earn a total of  24.00  from holding Fountain or generate 18.18% return on investment over 90 days.

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

Fountain  vs.  Floridienne

Fountain

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Fountain are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Fountain reported solid returns over the last few months and may actually be approaching a breakup point.

Floridienne

Risk-Adjusted Performance

Very Weak

Over the last 90 days Floridienne has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Floridienne is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Fountain and Floridienne

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

The idea behind Fountain and Floridienne 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.