Correlation Between Western Investment and Falcon Energy

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

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

Diversification Opportunities for Western Investment and Falcon Energy

-0.66

Correlation Coefficient

Western Investment  Falcon Energy

Excellent diversification

The 3 months correlation between Western and Falcon is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding Western Investment and Falcon Energy Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Falcon Energy Materials and Western Investment 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 Western Investment are associated (or correlated) with Falcon Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Falcon Energy Materials has no effect on the direction of Western Investment i.e., Western Investment and Falcon Energy go up and down completely randomly.

Pair Corralation between Western Investment and Falcon Energy

Given the investment horizon of 90 days Western Investment is expected to generate 1.1 times less return on investment than Falcon Energy. But when comparing it to its historical volatility, Western Investment is 2.07 times less risky than Falcon Energy. It trades about 0.19 of its potential returns per unit of risk. Falcon Energy Materials is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  65.00  in Falcon Energy Materials on October 24, 2024 and sell it today you would earn a total of  6.00  from holding Falcon Energy Materials or generate 9.23% return on investment over 90 days.

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

Western Investment  vs.  Falcon Energy Materials

Western Investment

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Western Investment are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Western Investment showed solid returns over the last few months and may actually be approaching a breakup point.

Falcon Energy Materials

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Falcon Energy Materials are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable fundamental indicators, Falcon Energy is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Western Investment and Falcon Energy

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

The idea behind Western Investment and Falcon Energy Materials 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.