Correlation Between Fomento Economico and Telecom

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Can any of the company-specific risk be diversified away by investing in both Fomento Economico and Telecom 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 Telecom 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 Telecom Italia Capital, you can compare the effects of market volatilities on Fomento Economico and Telecom 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 Telecom. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fomento Economico and Telecom.

Diversification Opportunities for Fomento Economico and Telecom

0.52
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Fomento and Telecom is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Fomento Economico Mexicano and Telecom Italia Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Telecom Italia Capital 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 Telecom. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Telecom Italia Capital has no effect on the direction of Fomento Economico i.e., Fomento Economico and Telecom go up and down completely randomly.

Pair Corralation between Fomento Economico and Telecom

Considering the 90-day investment horizon Fomento Economico Mexicano is expected to generate 1.41 times more return on investment than Telecom. However, Fomento Economico is 1.41 times more volatile than Telecom Italia Capital. It trades about 0.03 of its potential returns per unit of risk. Telecom Italia Capital is currently generating about 0.02 per unit of risk. If you would invest  7,601  in Fomento Economico Mexicano on September 14, 2024 and sell it today you would earn a total of  1,443  from holding Fomento Economico Mexicano or generate 18.98% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy98.99%
ValuesDaily Returns

Fomento Economico Mexicano  vs.  Telecom Italia Capital

 Performance 
       Timeline  
Fomento Economico 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
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.
Telecom Italia Capital 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Telecom Italia Capital has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Bond's basic indicators remain somewhat 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 Telecom Italia Capital investors.

Fomento Economico and Telecom Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Fomento Economico and Telecom

The main advantage of trading using opposite Fomento Economico and Telecom positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fomento Economico position performs unexpectedly, Telecom 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 Telecom will offset losses from the drop in Telecom's long position.
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The idea behind Fomento Economico Mexicano and Telecom Italia Capital 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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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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..

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