Correlation Between London Security and Freeport McMoRan
Can any of the company-specific risk be diversified away by investing in both London Security and Freeport McMoRan 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 London Security and Freeport McMoRan into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between London Security Plc and Freeport McMoRan, you can compare the effects of market volatilities on London Security and Freeport McMoRan 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 London Security with a short position of Freeport McMoRan. Check out your portfolio center. Please also check ongoing floating volatility patterns of London Security and Freeport McMoRan.
Diversification Opportunities for London Security and Freeport McMoRan
0.73 | Correlation Coefficient |
Poor diversification
The 3 months correlation between London and Freeport is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding London Security Plc and Freeport McMoRan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Freeport McMoRan and London Security 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 London Security Plc are associated (or correlated) with Freeport McMoRan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Freeport McMoRan has no effect on the direction of London Security i.e., London Security and Freeport McMoRan go up and down completely randomly.
Pair Corralation between London Security and Freeport McMoRan
Assuming the 90 days trading horizon London Security Plc is expected to generate 0.85 times more return on investment than Freeport McMoRan. However, London Security Plc is 1.18 times less risky than Freeport McMoRan. It trades about -0.11 of its potential returns per unit of risk. Freeport McMoRan is currently generating about -0.22 per unit of risk. If you would invest 371,671 in London Security Plc on September 23, 2024 and sell it today you would lose (31,671) from holding London Security Plc or give up 8.52% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
London Security Plc vs. Freeport McMoRan
Performance |
| Timeline |
| London Security Plc |
| Freeport McMoRan |
London Security and Freeport McMoRan Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with London Security and Freeport McMoRan
The main advantage of trading using opposite London Security and Freeport McMoRan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if London Security position performs unexpectedly, Freeport McMoRan 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 Freeport McMoRan will offset losses from the drop in Freeport McMoRan's long position.| London Security vs. Samsung Electronics Co | London Security vs. Samsung Electronics Co | London Security vs. Hyundai Motor | London Security vs. Toyota Motor Corp |
| Freeport McMoRan vs. Uniper SE | Freeport McMoRan vs. Mulberry Group PLC | Freeport McMoRan vs. London Security Plc | Freeport McMoRan vs. Triad Group PLC |
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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.
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