Correlation Between Retail Food and Fortescue

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

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

Diversification Opportunities for Retail Food and Fortescue

-0.45

Correlation Coefficient

Retail Food  Fortescue

Very good diversification

The 3 months correlation between Retail and Fortescue is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Retail Food Group and Fortescue in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fortescue and Retail Food 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 Retail Food Group are associated (or correlated) with Fortescue. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fortescue has no effect on the direction of Retail Food i.e., Retail Food and Fortescue go up and down completely randomly.

Pair Corralation between Retail Food and Fortescue

Assuming the 90 days trading horizon Retail Food is expected to generate 2.43 times less return on investment than Fortescue. But when comparing it to its historical volatility, Retail Food Group is 1.02 times less risky than Fortescue. It trades about 0.04 of its potential returns per unit of risk. Fortescue is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  1,719  in Fortescue on September 16, 2024 and sell it today you would earn a total of  229.00  from holding Fortescue or generate 13.32% return on investment over 90 days.

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

Retail Food Group  vs.  Fortescue

Retail Food Group

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Retail Food Group are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical and fundamental indicators, Retail Food is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Fortescue

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Fortescue are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain technical and fundamental indicators, Fortescue unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Retail Food and Fortescue

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

The idea behind Retail Food Group and Fortescue 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.