Correlation Between 0010EPAF5 and Fomento Economico

Can any of the company-specific risk be diversified away by investing in both 0010EPAF5 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 0010EPAF5 and Fomento Economico into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between AEP TEX CENT and Fomento Economico Mexicano, you can compare the effects of market volatilities on 0010EPAF5 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 0010EPAF5 with a short position of Fomento Economico. Check out your portfolio center. Please also check ongoing floating volatility patterns of 0010EPAF5 and Fomento Economico.

Diversification Opportunities for 0010EPAF5 and Fomento Economico

0.16

Correlation Coefficient

0010EPAF5  Fomento Economico

Average diversification

The 3 months correlation between 0010EPAF5 and Fomento is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding AEP TEX CENT and Fomento Economico Mexicano in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fomento Economico and 0010EPAF5 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 AEP TEX CENT 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 0010EPAF5 i.e., 0010EPAF5 and Fomento Economico go up and down completely randomly.

Pair Corralation between 0010EPAF5 and Fomento Economico

Assuming the 90 days trading horizon 0010EPAF5 is expected to generate 3.2 times less return on investment than Fomento Economico. But when comparing it to its historical volatility, AEP TEX CENT is 1.65 times less risky than Fomento Economico. It trades about 0.07 of its potential returns per unit of risk. Fomento Economico Mexicano is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  8,639  in Fomento Economico Mexicano on December 24, 2024 and sell it today you would earn a total of  1,100  from holding Fomento Economico Mexicano or generate 12.73% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	75.0%
Values	Daily Returns

AEP TEX CENT  vs.  Fomento Economico Mexicano

AEP TEX CENT

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in AEP TEX CENT are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, 0010EPAF5 is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Fomento Economico

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Fomento Economico Mexicano are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal primary indicators, Fomento Economico showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with 0010EPAF5 and Fomento Economico

The main advantage of trading using opposite 0010EPAF5 and Fomento Economico positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 0010EPAF5 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 AEP TEX CENT 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.