Correlation Between Federal National and China Molybdenum

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

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

Diversification Opportunities for Federal National and China Molybdenum

-0.76

Correlation Coefficient

Federal National  China Molybdenum

Pay attention - limited upside

The 3 months correlation between Federal and China is -0.76. Overlapping area represents the amount of risk that can be diversified away by holding Federal National Mortgage and China Molybdenum Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Molybdenum and Federal National 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 Federal National Mortgage are associated (or correlated) with China Molybdenum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Molybdenum has no effect on the direction of Federal National i.e., Federal National and China Molybdenum go up and down completely randomly.

Pair Corralation between Federal National and China Molybdenum

Assuming the 90 days horizon Federal National Mortgage is expected to generate 1.07 times more return on investment than China Molybdenum. However, Federal National is 1.07 times more volatile than China Molybdenum Co. It trades about 0.29 of its potential returns per unit of risk. China Molybdenum Co is currently generating about -0.19 per unit of risk. If you would invest  2,530,000  in Federal National Mortgage on September 22, 2024 and sell it today you would earn a total of  870,000  from holding Federal National Mortgage or generate 34.39% return on investment over 90 days.

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

Federal National Mortgage  vs.  China Molybdenum Co

Federal National Mortgage

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Federal National Mortgage are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting technical and fundamental indicators, Federal National displayed solid returns over the last few months and may actually be approaching a breakup point.

China Molybdenum

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Molybdenum Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's essential indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Federal National and China Molybdenum

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

The idea behind Federal National Mortgage and China Molybdenum Co 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.