Correlation Between IPC MEXICO and Fluor

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

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

Diversification Opportunities for IPC MEXICO and Fluor

-0.7

Correlation Coefficient

IPC MEXICO  Fluor

Excellent diversification

The 3 months correlation between IPC and Fluor is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding IPC MEXICO and Fluor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fluor and IPC MEXICO 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 IPC MEXICO are associated (or correlated) with Fluor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fluor has no effect on the direction of IPC MEXICO i.e., IPC MEXICO and Fluor go up and down completely randomly.

Pair Corralation between IPC MEXICO and Fluor

Assuming the 90 days trading horizon IPC MEXICO is expected to under-perform the Fluor. But the index apears to be less risky and, when comparing its historical volatility, IPC MEXICO is 1.9 times less risky than Fluor. The index trades about -0.11 of its potential returns per unit of risk. The Fluor is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  88,000  in Fluor on September 29, 2024 and sell it today you would earn a total of  10,527  from holding Fluor or generate 11.96% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	93.85%
Values	Daily Returns

IPC MEXICO  vs.  Fluor

Pair Trading with IPC MEXICO and Fluor

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

The idea behind IPC MEXICO and Fluor 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.