Correlation Between Maker and FTM

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

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

Diversification Opportunities for Maker and FTM

0.8

Correlation Coefficient

Maker  FTM

Very poor diversification

The 3 months correlation between Maker and FTM is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Maker and FTM in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FTM and Maker 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 Maker are associated (or correlated) with FTM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FTM has no effect on the direction of Maker i.e., Maker and FTM go up and down completely randomly.

Pair Corralation between Maker and FTM

Assuming the 90 days trading horizon Maker is expected to generate 0.62 times more return on investment than FTM. However, Maker is 1.63 times less risky than FTM. It trades about 0.0 of its potential returns per unit of risk. FTM is currently generating about 0.0 per unit of risk. If you would invest  149,147  in Maker on December 30, 2024 and sell it today you would lose (20,078) from holding Maker or give up 13.46% of portfolio value over 90 days.

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

Maker  vs.  FTM

Maker

Risk-Adjusted Performance

Very Weak

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

FTM

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Maker and FTM

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

The idea behind Maker and FTM 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.