Correlation Between Freeport McMoRan and Optima Health

Can any of the company-specific risk be diversified away by investing in both Freeport McMoRan and Optima Health 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 Freeport McMoRan and Optima Health into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Freeport McMoRan and Optima Health plc, you can compare the effects of market volatilities on Freeport McMoRan and Optima Health 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 Freeport McMoRan with a short position of Optima Health. Check out your portfolio center. Please also check ongoing floating volatility patterns of Freeport McMoRan and Optima Health.

Diversification Opportunities for Freeport McMoRan and Optima Health

-0.12

Correlation Coefficient

Freeport McMoRan  Optima Health

Good diversification

The 3 months correlation between Freeport and Optima is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding Freeport McMoRan and Optima Health plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Optima Health plc and Freeport McMoRan 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 Freeport McMoRan are associated (or correlated) with Optima Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Optima Health plc has no effect on the direction of Freeport McMoRan i.e., Freeport McMoRan and Optima Health go up and down completely randomly.

Pair Corralation between Freeport McMoRan and Optima Health

Assuming the 90 days trading horizon Freeport McMoRan is expected to under-perform the Optima Health. In addition to that, Freeport McMoRan is 1.84 times more volatile than Optima Health plc. It trades about -0.09 of its total potential returns per unit of risk. Optima Health plc is currently generating about -0.03 per unit of volatility. If you would invest  15,100  in Optima Health plc on September 23, 2024 and sell it today you would lose (400.00) from holding Optima Health plc or give up 2.65% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Freeport McMoRan  vs.  Optima Health plc

Freeport McMoRan

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Freeport McMoRan has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Optima Health plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Optima Health plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Optima Health is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Freeport McMoRan and Optima Health

The main advantage of trading using opposite Freeport McMoRan and Optima Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Freeport McMoRan position performs unexpectedly, Optima Health 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 Optima Health will offset losses from the drop in Optima Health's long position.

The idea behind Freeport McMoRan and Optima Health plc 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.