Correlation Between Royal Mail and FedEx

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

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

Diversification Opportunities for Royal Mail and FedEx

-0.29

Correlation Coefficient

Royal Mail  FedEx

Very good diversification

The 3 months correlation between Royal and FedEx is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Royal Mail PLC and FedEx in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FedEx and Royal Mail 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 Royal Mail PLC are associated (or correlated) with FedEx. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FedEx has no effect on the direction of Royal Mail i.e., Royal Mail and FedEx go up and down completely randomly.

Pair Corralation between Royal Mail and FedEx

Assuming the 90 days horizon Royal Mail PLC is expected to under-perform the FedEx. But the pink sheet apears to be less risky and, when comparing its historical volatility, Royal Mail PLC is 3.21 times less risky than FedEx. The pink sheet trades about -0.01 of its potential returns per unit of risk. The FedEx is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  29,205  in FedEx on September 3, 2024 and sell it today you would earn a total of  1,062  from holding FedEx or generate 3.64% return on investment over 90 days.

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

Royal Mail PLC  vs.  FedEx

Royal Mail PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Royal Mail PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong primary indicators, Royal Mail is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

FedEx

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in FedEx are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong fundamental indicators, FedEx is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Royal Mail and FedEx

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

The idea behind Royal Mail PLC and FedEx 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.