Correlation Between Valeura Energy and FEC Resources

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

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

Diversification Opportunities for Valeura Energy and FEC Resources

-0.5

Correlation Coefficient

Valeura Energy  FEC Resources

Very good diversification

The 3 months correlation between Valeura and FEC is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Valeura Energy and FEC Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FEC Resources and Valeura Energy 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 Valeura Energy are associated (or correlated) with FEC Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FEC Resources has no effect on the direction of Valeura Energy i.e., Valeura Energy and FEC Resources go up and down completely randomly.

Pair Corralation between Valeura Energy and FEC Resources

Assuming the 90 days horizon Valeura Energy is expected to generate 5.07 times less return on investment than FEC Resources. But when comparing it to its historical volatility, Valeura Energy is 4.33 times less risky than FEC Resources. It trades about 0.07 of its potential returns per unit of risk. FEC Resources is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  0.18  in FEC Resources on September 23, 2024 and sell it today you would earn a total of  0.09  from holding FEC Resources or generate 50.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.8%
Values	Daily Returns

Valeura Energy  vs.  FEC Resources

Valeura Energy

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Valeura Energy are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Valeura Energy reported solid returns over the last few months and may actually be approaching a breakup point.

FEC Resources

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in FEC Resources are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, FEC Resources reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Valeura Energy and FEC Resources

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

The idea behind Valeura Energy and FEC Resources 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.

Check out your portfolio center.

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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.