Correlation Between Cars and FMC Corp
Can any of the company-specific risk be diversified away by investing in both Cars and FMC Corp 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 Cars and FMC Corp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Cars Inc and FMC Corp, you can compare the effects of market volatilities on Cars and FMC Corp 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 Cars with a short position of FMC Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cars and FMC Corp.
Diversification Opportunities for Cars and FMC Corp
Very good diversification
The 3 months correlation between Cars and FMC is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Cars Inc and FMC Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FMC Corp and Cars 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 Cars Inc are associated (or correlated) with FMC Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FMC Corp has no effect on the direction of Cars i.e., Cars and FMC Corp go up and down completely randomly.
Pair Corralation between Cars and FMC Corp
Assuming the 90 days trading horizon Cars Inc is expected to generate 1.5 times more return on investment than FMC Corp. However, Cars is 1.5 times more volatile than FMC Corp. It trades about 0.11 of its potential returns per unit of risk. FMC Corp is currently generating about -0.06 per unit of risk. If you would invest 1,764 in Cars Inc on September 2, 2024 and sell it today you would earn a total of 209.00 from holding Cars Inc or generate 11.85% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 56.06% |
| Values | Daily Returns |
Cars Inc vs. FMC Corp
Performance |
| Timeline |
| Cars Inc |
| FMC Corp |
Cars and FMC Corp Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cars and FMC Corp
The main advantage of trading using opposite Cars and FMC Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cars position performs unexpectedly, FMC Corp 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 FMC Corp will offset losses from the drop in FMC Corp's long position.The idea behind Cars Inc and FMC Corp 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.| FMC Corp vs. Uniper SE | FMC Corp vs. Mulberry Group PLC | FMC Corp vs. London Security Plc | FMC Corp vs. Triad Group PLC |
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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.
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