Correlation Between FMC and CECO Environmental
Can any of the company-specific risk be diversified away by investing in both FMC and CECO Environmental 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 FMC and CECO Environmental into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between FMC Corporation and CECO Environmental Corp, you can compare the effects of market volatilities on FMC and CECO Environmental 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 FMC with a short position of CECO Environmental. Check out your portfolio center. Please also check ongoing floating volatility patterns of FMC and CECO Environmental.
Diversification Opportunities for FMC and CECO Environmental
0.05 | Correlation Coefficient |
Significant diversification
The 3 months correlation between FMC and CECO is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding FMC Corp. and CECO Environmental Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CECO Environmental Corp and FMC 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 FMC Corporation are associated (or correlated) with CECO Environmental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CECO Environmental Corp has no effect on the direction of FMC i.e., FMC and CECO Environmental go up and down completely randomly.
Pair Corralation between FMC and CECO Environmental
Considering the 90-day investment horizon FMC Corporation is expected to under-perform the CECO Environmental. But the stock apears to be less risky and, when comparing its historical volatility, FMC Corporation is 1.27 times less risky than CECO Environmental. The stock trades about -0.05 of its potential returns per unit of risk. The CECO Environmental Corp is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 1,184 in CECO Environmental Corp on August 24, 2024 and sell it today you would earn a total of 1,952 from holding CECO Environmental Corp or generate 164.86% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
FMC Corp. vs. CECO Environmental Corp
Performance |
| Timeline |
| FMC Corporation |
| CECO Environmental Corp |
FMC and CECO Environmental Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with FMC and CECO Environmental
The main advantage of trading using opposite FMC and CECO Environmental positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if FMC position performs unexpectedly, CECO Environmental 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 CECO Environmental will offset losses from the drop in CECO Environmental's long position.The idea behind FMC Corporation and CECO Environmental 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.| CECO Environmental vs. China Natural Resources | CECO Environmental vs. Seychelle Environmtl | CECO Environmental vs. Vow ASA | CECO Environmental vs. Eestech |
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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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