Correlation Between Fortescue Metals and Materion

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

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

Diversification Opportunities for Fortescue Metals and Materion

0.9

Correlation Coefficient

Fortescue Metals  Materion

Almost no diversification

The 3 months correlation between Fortescue and Materion is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Fortescue Metals Group and Materion in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Materion and Fortescue Metals 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 Fortescue Metals Group are associated (or correlated) with Materion. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Materion has no effect on the direction of Fortescue Metals i.e., Fortescue Metals and Materion go up and down completely randomly.

Pair Corralation between Fortescue Metals and Materion

Assuming the 90 days horizon Fortescue Metals Group is expected to generate 0.98 times more return on investment than Materion. However, Fortescue Metals Group is 1.02 times less risky than Materion. It trades about -0.1 of its potential returns per unit of risk. Materion is currently generating about -0.12 per unit of risk. If you would invest  2,270  in Fortescue Metals Group on December 30, 2024 and sell it today you would lose (298.00) from holding Fortescue Metals Group or give up 13.13% of portfolio value over 90 days.

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

Fortescue Metals Group  vs.  Materion

Fortescue Metals

Risk-Adjusted Performance

Very Weak

Over the last 90 days Fortescue Metals Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's technical and fundamental indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Materion

Risk-Adjusted Performance

Very Weak

Over the last 90 days Materion has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Fortescue Metals and Materion

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

The idea behind Fortescue Metals Group and Materion 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.