Correlation Between TechnipFMC PLC and American Cannabis

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

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

Diversification Opportunities for TechnipFMC PLC and American Cannabis

-0.44

Correlation Coefficient

TechnipFMC PLC  American Cannabis

Very good diversification

The 3 months correlation between TechnipFMC and American is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding TechnipFMC PLC and American Cannabis in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Cannabis and TechnipFMC PLC 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 TechnipFMC PLC are associated (or correlated) with American Cannabis. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Cannabis has no effect on the direction of TechnipFMC PLC i.e., TechnipFMC PLC and American Cannabis go up and down completely randomly.

Pair Corralation between TechnipFMC PLC and American Cannabis

Considering the 90-day investment horizon TechnipFMC PLC is expected to generate 11.22 times less return on investment than American Cannabis. But when comparing it to its historical volatility, TechnipFMC PLC is 17.14 times less risky than American Cannabis. It trades about 0.12 of its potential returns per unit of risk. American Cannabis is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  1.30  in American Cannabis on September 4, 2024 and sell it today you would lose (1.27) from holding American Cannabis or give up 97.69% of portfolio value over 90 days.

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

TechnipFMC PLC  vs.  American Cannabis

TechnipFMC PLC

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in TechnipFMC PLC are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite fairly uncertain basic indicators, TechnipFMC PLC demonstrated solid returns over the last few months and may actually be approaching a breakup point.

American Cannabis

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in American Cannabis are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Even with relatively inconsistent primary indicators, American Cannabis revealed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with TechnipFMC PLC and American Cannabis

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

The idea behind TechnipFMC PLC and American Cannabis 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.