Correlation Between Global Net and Fomento Economico

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

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

Diversification Opportunities for Global Net and Fomento Economico

0.53

Correlation Coefficient

Global Net  Fomento Economico

Very weak diversification

The 3 months correlation between Global and Fomento is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Global Net Lease and Fomento Economico Mexicano in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fomento Economico and Global Net 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 Global Net Lease are associated (or correlated) with Fomento Economico. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fomento Economico has no effect on the direction of Global Net i.e., Global Net and Fomento Economico go up and down completely randomly.

Pair Corralation between Global Net and Fomento Economico

Assuming the 90 days trading horizon Global Net is expected to generate 3.91 times less return on investment than Fomento Economico. But when comparing it to its historical volatility, Global Net Lease is 1.48 times less risky than Fomento Economico. It trades about 0.05 of its potential returns per unit of risk. Fomento Economico Mexicano is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  8,635  in Fomento Economico Mexicano on December 20, 2024 and sell it today you would earn a total of  1,227  from holding Fomento Economico Mexicano or generate 14.21% return on investment over 90 days.

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

Global Net Lease  vs.  Fomento Economico Mexicano

Global Net Lease

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Global Net Lease are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound essential indicators, Global Net is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Fomento Economico

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Fomento Economico Mexicano are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal primary indicators, Fomento Economico showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Global Net and Fomento Economico

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

The idea behind Global Net Lease and Fomento Economico 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.