Correlation Between Fortescue Metals and Persimmon Plc

Can any of the company-specific risk be diversified away by investing in both Fortescue Metals and Persimmon Plc 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 Persimmon Plc 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 Persimmon Plc, you can compare the effects of market volatilities on Fortescue Metals and Persimmon Plc 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 Persimmon Plc. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fortescue Metals and Persimmon Plc.

Diversification Opportunities for Fortescue Metals and Persimmon Plc

0.86

Correlation Coefficient

Fortescue Metals  Persimmon Plc

Very poor diversification

The 3 months correlation between Fortescue and Persimmon is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Fortescue Metals Group and Persimmon Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Persimmon Plc 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 Persimmon Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Persimmon Plc has no effect on the direction of Fortescue Metals i.e., Fortescue Metals and Persimmon Plc go up and down completely randomly.

Pair Corralation between Fortescue Metals and Persimmon Plc

Assuming the 90 days horizon Fortescue Metals Group is expected to under-perform the Persimmon Plc. In addition to that, Fortescue Metals is 1.18 times more volatile than Persimmon Plc. It trades about -0.22 of its total potential returns per unit of risk. Persimmon Plc is currently generating about -0.13 per unit of volatility. If you would invest  3,137  in Persimmon Plc on October 2, 2024 and sell it today you would lose (146.00) from holding Persimmon Plc or give up 4.65% of portfolio value over 90 days.

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

Fortescue Metals Group  vs.  Persimmon Plc

Fortescue Metals

Risk-Adjusted Performance

0 of 100

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 January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Persimmon Plc

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Fortescue Metals and Persimmon Plc

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

The idea behind Fortescue Metals Group and Persimmon Plc 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.