Correlation Between Fountain and Melexis NV

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

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

Diversification Opportunities for Fountain and Melexis NV

0.74

Correlation Coefficient

Fountain  Melexis NV

Poor diversification

The 3 months correlation between Fountain and Melexis is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Fountain and Melexis NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Melexis NV and Fountain 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 Fountain are associated (or correlated) with Melexis NV. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Melexis NV has no effect on the direction of Fountain i.e., Fountain and Melexis NV go up and down completely randomly.

Pair Corralation between Fountain and Melexis NV

Assuming the 90 days trading horizon Fountain is expected to generate 1.78 times more return on investment than Melexis NV. However, Fountain is 1.78 times more volatile than Melexis NV. It trades about -0.07 of its potential returns per unit of risk. Melexis NV is currently generating about -0.18 per unit of risk. If you would invest  161.00  in Fountain on September 21, 2024 and sell it today you would lose (34.00) from holding Fountain or give up 21.12% of portfolio value over 90 days.

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

Fountain  vs.  Melexis NV

Fountain

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fountain has generated negative risk-adjusted returns adding no value to investors with long positions. Even with weak performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in January 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Melexis NV

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Melexis NV has generated negative risk-adjusted returns adding no value to investors with long positions. Even with weak performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in January 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with Fountain and Melexis NV

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

The idea behind Fountain and Melexis NV 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.