Correlation Between Maple Leaf and Falcon Energy

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

By analyzing existing cross correlation between Maple Leaf Foods and Falcon Energy Materials, you can compare the effects of market volatilities on Maple Leaf and Falcon Energy 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 Maple Leaf with a short position of Falcon Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Maple Leaf and Falcon Energy.

Diversification Opportunities for Maple Leaf and Falcon Energy

0.63

Correlation Coefficient

Maple Leaf  Falcon Energy

Poor diversification

The 3 months correlation between Maple and Falcon is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Maple Leaf Foods and Falcon Energy Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Falcon Energy Materials and Maple Leaf 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 Maple Leaf Foods are associated (or correlated) with Falcon Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Falcon Energy Materials has no effect on the direction of Maple Leaf i.e., Maple Leaf and Falcon Energy go up and down completely randomly.

Pair Corralation between Maple Leaf and Falcon Energy

Assuming the 90 days trading horizon Maple Leaf is expected to generate 6.93 times less return on investment than Falcon Energy. But when comparing it to its historical volatility, Maple Leaf Foods is 2.74 times less risky than Falcon Energy. It trades about 0.03 of its potential returns per unit of risk. Falcon Energy Materials is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  69.00  in Falcon Energy Materials on September 4, 2024 and sell it today you would earn a total of  12.00  from holding Falcon Energy Materials or generate 17.39% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Maple Leaf Foods  vs.  Falcon Energy Materials

Maple Leaf Foods

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Maple Leaf Foods are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy forward indicators, Maple Leaf is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Falcon Energy Materials

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Falcon Energy Materials are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental indicators, Falcon Energy showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Maple Leaf and Falcon Energy

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

The idea behind Maple Leaf Foods and Falcon Energy Materials 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.