Correlation Between FDO DE and FDO INV
Can any of the company-specific risk be diversified away by investing in both FDO DE and FDO INV 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 FDO DE and FDO INV into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between FDO DE INVEST and FDO INV CAD, you can compare the effects of market volatilities on FDO DE and FDO INV 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 FDO DE with a short position of FDO INV. Check out your portfolio center. Please also check ongoing floating volatility patterns of FDO DE and FDO INV.
Diversification Opportunities for FDO DE and FDO INV
Very weak diversification
The 3 months correlation between FDO and FDO is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding FDO DE INVEST and FDO INV CAD in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FDO INV CAD and FDO DE 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 FDO DE INVEST are associated (or correlated) with FDO INV. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FDO INV CAD has no effect on the direction of FDO DE i.e., FDO DE and FDO INV go up and down completely randomly.
Pair Corralation between FDO DE and FDO INV
Assuming the 90 days trading horizon FDO DE INVEST is expected to generate 0.37 times more return on investment than FDO INV. However, FDO DE INVEST is 2.68 times less risky than FDO INV. It trades about -0.1 of its potential returns per unit of risk. FDO INV CAD is currently generating about -0.06 per unit of risk. If you would invest 912.00 in FDO DE INVEST on October 24, 2024 and sell it today you would lose (84.00) from holding FDO DE INVEST or give up 9.21% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 86.25% |
| Values | Daily Returns |
FDO DE INVEST vs. FDO INV CAD
Performance |
| Timeline |
| FDO DE INVEST |
| FDO INV CAD |
FDO DE and FDO INV Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with FDO DE and FDO INV
The main advantage of trading using opposite FDO DE and FDO INV positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if FDO DE position performs unexpectedly, FDO INV 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 FDO INV will offset losses from the drop in FDO INV's long position.The idea behind FDO DE INVEST and FDO INV CAD 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.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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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