Correlation Between FPT Digital and Petrolimex Insurance

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

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

Diversification Opportunities for FPT Digital and Petrolimex Insurance

0.29

Correlation Coefficient

FPT Digital  Petrolimex Insurance

Modest diversification

The 3 months correlation between FPT and Petrolimex is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding FPT Digital Retail and Petrolimex Insurance Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Petrolimex Insurance Corp and FPT Digital 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 FPT Digital Retail are associated (or correlated) with Petrolimex Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Petrolimex Insurance Corp has no effect on the direction of FPT Digital i.e., FPT Digital and Petrolimex Insurance go up and down completely randomly.

Pair Corralation between FPT Digital and Petrolimex Insurance

Assuming the 90 days trading horizon FPT Digital Retail is expected to under-perform the Petrolimex Insurance. But the stock apears to be less risky and, when comparing its historical volatility, FPT Digital Retail is 1.91 times less risky than Petrolimex Insurance. The stock trades about -0.33 of its potential returns per unit of risk. The Petrolimex Insurance Corp is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  2,354,668  in Petrolimex Insurance Corp on December 5, 2024 and sell it today you would lose (14,668) from holding Petrolimex Insurance Corp or give up 0.62% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	77.27%
Values	Daily Returns

FPT Digital Retail  vs.  Petrolimex Insurance Corp

FPT Digital Retail

Risk-Adjusted Performance

Very Weak

Over the last 90 days FPT Digital Retail has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, FPT Digital is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Petrolimex Insurance Corp

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Petrolimex Insurance Corp are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating forward indicators, Petrolimex Insurance displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with FPT Digital and Petrolimex Insurance

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

The idea behind FPT Digital Retail and Petrolimex Insurance Corp 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.