Correlation Between Fomento Economico and GENERAL

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Can any of the company-specific risk be diversified away by investing in both Fomento Economico and GENERAL 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 Fomento Economico and GENERAL into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Fomento Economico Mexicano and GENERAL ELEC CAP, you can compare the effects of market volatilities on Fomento Economico and GENERAL 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 Fomento Economico with a short position of GENERAL. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fomento Economico and GENERAL.

Diversification Opportunities for Fomento Economico and GENERAL

0.1
  Correlation Coefficient

Average diversification

The 3 months correlation between Fomento and GENERAL is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Fomento Economico Mexicano and GENERAL ELEC CAP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GENERAL ELEC CAP and Fomento Economico 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 Fomento Economico Mexicano are associated (or correlated) with GENERAL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GENERAL ELEC CAP has no effect on the direction of Fomento Economico i.e., Fomento Economico and GENERAL go up and down completely randomly.

Pair Corralation between Fomento Economico and GENERAL

Considering the 90-day investment horizon Fomento Economico Mexicano is expected to under-perform the GENERAL. But the stock apears to be less risky and, when comparing its historical volatility, Fomento Economico Mexicano is 1.08 times less risky than GENERAL. The stock trades about -0.02 of its potential returns per unit of risk. The GENERAL ELEC CAP is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  9,495  in GENERAL ELEC CAP on September 12, 2024 and sell it today you would earn a total of  32.00  from holding GENERAL ELEC CAP or generate 0.34% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy54.83%
ValuesDaily Returns

Fomento Economico Mexicano  vs.  GENERAL ELEC CAP

 Performance 
       Timeline  
Fomento Economico 

Risk-Adjusted Performance

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Weak
 
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Over the last 90 days Fomento Economico Mexicano has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's primary indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.
GENERAL ELEC CAP 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days GENERAL ELEC CAP has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Bond's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for GENERAL ELEC CAP investors.

Fomento Economico and GENERAL Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Fomento Economico and GENERAL

The main advantage of trading using opposite Fomento Economico and GENERAL positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fomento Economico position performs unexpectedly, GENERAL 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 GENERAL will offset losses from the drop in GENERAL's long position.
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The idea behind Fomento Economico Mexicano and GENERAL ELEC CAP 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.

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