Correlation Between Fortescue Metals and Teck Resources
Can any of the company-specific risk be diversified away by investing in both Fortescue Metals and Teck Resources 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 Fortescue Metals and Teck Resources into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Fortescue Metals Group and Teck Resources Ltd, you can compare the effects of market volatilities on Fortescue Metals and Teck Resources 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 Fortescue Metals with a short position of Teck Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fortescue Metals and Teck Resources.
Diversification Opportunities for Fortescue Metals and Teck Resources
0.86 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Fortescue and Teck is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Fortescue Metals Group and Teck Resources Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Teck Resources and Fortescue Metals 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 Fortescue Metals Group are associated (or correlated) with Teck Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Teck Resources has no effect on the direction of Fortescue Metals i.e., Fortescue Metals and Teck Resources go up and down completely randomly.
Pair Corralation between Fortescue Metals and Teck Resources
Assuming the 90 days horizon Fortescue Metals Group is expected to under-perform the Teck Resources. In addition to that, Fortescue Metals is 1.14 times more volatile than Teck Resources Ltd. It trades about -0.14 of its total potential returns per unit of risk. Teck Resources Ltd is currently generating about -0.05 per unit of volatility. If you would invest 4,774 in Teck Resources Ltd on August 29, 2024 and sell it today you would lose (144.00) from holding Teck Resources Ltd or give up 3.02% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Fortescue Metals Group vs. Teck Resources Ltd
Performance |
| Timeline |
| Fortescue Metals |
| Teck Resources |
Fortescue Metals and Teck Resources Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Fortescue Metals and Teck Resources
The main advantage of trading using opposite Fortescue Metals and Teck Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fortescue Metals position performs unexpectedly, Teck Resources 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 Teck Resources will offset losses from the drop in Teck Resources' long position.The idea behind Fortescue Metals Group and Teck Resources Ltd 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.| Teck Resources vs. Vale SA ADR | Teck Resources vs. BHP Group Limited | Teck Resources vs. Glencore PLC ADR | Teck Resources vs. Piedmont Lithium Ltd |
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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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