Correlation Between Nuvalent and Fomento Economico

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

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

Diversification Opportunities for Nuvalent and Fomento Economico

0.7

Correlation Coefficient

Nuvalent  Fomento Economico

Poor diversification

The 3 months correlation between Nuvalent and Fomento is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Nuvalent and Fomento Economico Mexicano in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fomento Economico and Nuvalent 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 Nuvalent 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 Nuvalent i.e., Nuvalent and Fomento Economico go up and down completely randomly.

Pair Corralation between Nuvalent and Fomento Economico

Given the investment horizon of 90 days Nuvalent is expected to generate 1.81 times more return on investment than Fomento Economico. However, Nuvalent is 1.81 times more volatile than Fomento Economico Mexicano. It trades about 0.04 of its potential returns per unit of risk. Fomento Economico Mexicano is currently generating about -0.04 per unit of risk. If you would invest  6,120  in Nuvalent on October 5, 2024 and sell it today you would earn a total of  1,958  from holding Nuvalent or generate 31.99% return on investment over 90 days.

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

Nuvalent  vs.  Fomento Economico Mexicano

Nuvalent

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nuvalent has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in February 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Fomento Economico

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fomento Economico Mexicano has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's primary indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Nuvalent and Fomento Economico

The main advantage of trading using opposite Nuvalent and Fomento Economico positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nuvalent 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 Nuvalent 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.