Correlation Between Core and FSN

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

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

Diversification Opportunities for Core and FSN

0.39

Correlation Coefficient

Core  FSN

Weak diversification

The 3 months correlation between Core and FSN is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Core and FSN in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FSN and Core 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 Core are associated (or correlated) with FSN. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FSN has no effect on the direction of Core i.e., Core and FSN go up and down completely randomly.

Pair Corralation between Core and FSN

Assuming the 90 days trading horizon Core is expected to generate 1.06 times more return on investment than FSN. However, Core is 1.06 times more volatile than FSN. It trades about 0.19 of its potential returns per unit of risk. FSN is currently generating about 0.07 per unit of risk. If you would invest  87.00  in Core on September 2, 2024 and sell it today you would earn a total of  110.00  from holding Core or generate 126.44% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Core  vs.  FSN

Core

Risk-Adjusted Performance

15 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Core are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Core exhibited solid returns over the last few months and may actually be approaching a breakup point.

FSN

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in FSN are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, FSN exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Core and FSN

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

The idea behind Core and FSN 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..