Correlation Between CHAMPION IRON and TechnipFMC PLC

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

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

Diversification Opportunities for CHAMPION IRON and TechnipFMC PLC

0.64

Correlation Coefficient

CHAMPION IRON  TechnipFMC PLC

Poor diversification

The 3 months correlation between CHAMPION and TechnipFMC is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding CHAMPION IRON and TechnipFMC PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TechnipFMC PLC and CHAMPION IRON 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 CHAMPION IRON are associated (or correlated) with TechnipFMC PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TechnipFMC PLC has no effect on the direction of CHAMPION IRON i.e., CHAMPION IRON and TechnipFMC PLC go up and down completely randomly.

Pair Corralation between CHAMPION IRON and TechnipFMC PLC

Assuming the 90 days trading horizon CHAMPION IRON is expected to under-perform the TechnipFMC PLC. In addition to that, CHAMPION IRON is 1.08 times more volatile than TechnipFMC PLC. It trades about -0.07 of its total potential returns per unit of risk. TechnipFMC PLC is currently generating about 0.0 per unit of volatility. If you would invest  2,772  in TechnipFMC PLC on December 24, 2024 and sell it today you would lose (71.00) from holding TechnipFMC PLC or give up 2.56% of portfolio value over 90 days.

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

CHAMPION IRON  vs.  TechnipFMC PLC

CHAMPION IRON

Risk-Adjusted Performance

Very Weak

Over the last 90 days CHAMPION IRON has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

TechnipFMC PLC

Risk-Adjusted Performance

Very Weak

Over the last 90 days TechnipFMC PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, TechnipFMC PLC is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with CHAMPION IRON and TechnipFMC PLC

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

The idea behind CHAMPION IRON and TechnipFMC PLC 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.