Correlation Between X FAB and Fortescue Metals

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

By analyzing existing cross correlation between X FAB Silicon Foundries and Fortescue Metals Group, you can compare the effects of market volatilities on X FAB and Fortescue Metals 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 X FAB with a short position of Fortescue Metals. Check out your portfolio center. Please also check ongoing floating volatility patterns of X FAB and Fortescue Metals.

Diversification Opportunities for X FAB and Fortescue Metals

0.46

Correlation Coefficient

X FAB  Fortescue Metals

Very weak diversification

The 3 months correlation between XFB and Fortescue is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding X FAB Silicon Foundries and Fortescue Metals Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fortescue Metals and X FAB 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 X FAB Silicon Foundries are associated (or correlated) with Fortescue Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fortescue Metals has no effect on the direction of X FAB i.e., X FAB and Fortescue Metals go up and down completely randomly.

Pair Corralation between X FAB and Fortescue Metals

Assuming the 90 days trading horizon X FAB Silicon Foundries is expected to generate 1.51 times more return on investment than Fortescue Metals. However, X FAB is 1.51 times more volatile than Fortescue Metals Group. It trades about -0.02 of its potential returns per unit of risk. Fortescue Metals Group is currently generating about -0.1 per unit of risk. If you would invest  531.00  in X FAB Silicon Foundries on October 11, 2024 and sell it today you would lose (36.00) from holding X FAB Silicon Foundries or give up 6.78% of portfolio value over 90 days.

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

X FAB Silicon Foundries  vs.  Fortescue Metals Group

X FAB Silicon

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days X FAB Silicon Foundries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental drivers, X FAB is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Fortescue Metals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fortescue Metals Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with X FAB and Fortescue Metals

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

The idea behind X FAB Silicon Foundries and Fortescue Metals Group 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.