Correlation Between Southern California and Fomento Economico

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

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

Diversification Opportunities for Southern California and Fomento Economico

0.4

Correlation Coefficient

Southern California  Fomento Economico

Very weak diversification

The 3 months correlation between Southern and Fomento is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Southern California Gas and Fomento Economico Mexicano in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fomento Economico and Southern California 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 Southern California Gas 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 Southern California i.e., Southern California and Fomento Economico go up and down completely randomly.

Pair Corralation between Southern California and Fomento Economico

If you would invest  2,515  in Southern California Gas on October 11, 2024 and sell it today you would earn a total of  0.00  from holding Southern California Gas or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	10.0%
Values	Daily Returns

Southern California Gas  vs.  Fomento Economico Mexicano

Southern California Gas

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Southern California Gas has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest inconsistent performance, the Stock's technical and fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm 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 Southern California and Fomento Economico

The main advantage of trading using opposite Southern California and Fomento Economico positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Southern California 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 Southern California Gas 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 Global Correlations module to find global opportunities by holding instruments from different markets.