Correlation Between FMC and Danakali
Can any of the company-specific risk be diversified away by investing in both FMC and Danakali 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 Danakali into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between FMC Corporation and Danakali, you can compare the effects of market volatilities on FMC and Danakali 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 Danakali. Check out your portfolio center. Please also check ongoing floating volatility patterns of FMC and Danakali.
Diversification Opportunities for FMC and Danakali
Modest diversification
The 3 months correlation between FMC and Danakali is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding FMC Corp. and Danakali in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Danakali 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 Danakali. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Danakali has no effect on the direction of FMC i.e., FMC and Danakali go up and down completely randomly.
Pair Corralation between FMC and Danakali
Considering the 90-day investment horizon FMC Corporation is expected to generate 0.36 times more return on investment than Danakali. However, FMC Corporation is 2.82 times less risky than Danakali. It trades about -0.24 of its potential returns per unit of risk. Danakali is currently generating about -0.12 per unit of risk. If you would invest 6,662 in FMC Corporation on August 31, 2024 and sell it today you would lose (712.00) from holding FMC Corporation or give up 10.69% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 63.64% |
| Values | Daily Returns |
FMC Corp. vs. Danakali
Performance |
| Timeline |
| FMC Corporation |
| Danakali |
FMC and Danakali Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with FMC and Danakali
The main advantage of trading using opposite FMC and Danakali positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if FMC position performs unexpectedly, Danakali 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 Danakali will offset losses from the drop in Danakali's long position.The idea behind FMC Corporation and Danakali 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.| Danakali vs. Corteva | Danakali vs. Nutrien | Danakali vs. CF Industries Holdings | Danakali vs. Yara International ASA |
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 Equity Valuation module to check real value of public entities based on technical and fundamental data.
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