Correlation Between Grupo Financiero and Fomento Econmico

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

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

Diversification Opportunities for Grupo Financiero and Fomento Econmico

-0.3

Correlation Coefficient

Grupo Financiero  Fomento Econmico

Very good diversification

The 3 months correlation between Grupo and Fomento is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Grupo Financiero Banorte and Fomento Econmico Mexicano in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fomento Econmico Mexicano and Grupo Financiero 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 Grupo Financiero Banorte are associated (or correlated) with Fomento Econmico. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fomento Econmico Mexicano has no effect on the direction of Grupo Financiero i.e., Grupo Financiero and Fomento Econmico go up and down completely randomly.

Pair Corralation between Grupo Financiero and Fomento Econmico

Assuming the 90 days trading horizon Grupo Financiero Banorte is expected to generate 1.62 times more return on investment than Fomento Econmico. However, Grupo Financiero is 1.62 times more volatile than Fomento Econmico Mexicano. It trades about -0.01 of its potential returns per unit of risk. Fomento Econmico Mexicano is currently generating about -0.16 per unit of risk. If you would invest  13,655  in Grupo Financiero Banorte on August 30, 2024 and sell it today you would lose (299.00) from holding Grupo Financiero Banorte or give up 2.19% of portfolio value over 90 days.

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

Grupo Financiero Banorte  vs.  Fomento Econmico Mexicano

Grupo Financiero Banorte

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Grupo Financiero Banorte has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Grupo Financiero is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Fomento Econmico Mexicano

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fomento Econmico Mexicano has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Grupo Financiero and Fomento Econmico

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

The idea behind Grupo Financiero Banorte and Fomento Econmico Mexicano 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 Valuation module to check real value of public entities based on technical and fundamental data.