Correlation Between Spindletop and FEC Resources

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

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

Diversification Opportunities for Spindletop and FEC Resources

0.38

Correlation Coefficient

Spindletop  FEC Resources

Weak diversification

The 3 months correlation between Spindletop and FEC is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Spindletop OG and FEC Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FEC Resources and Spindletop 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 Spindletop OG are associated (or correlated) with FEC Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FEC Resources has no effect on the direction of Spindletop i.e., Spindletop and FEC Resources go up and down completely randomly.

Pair Corralation between Spindletop and FEC Resources

Given the investment horizon of 90 days Spindletop OG is expected to under-perform the FEC Resources. But the pink sheet apears to be less risky and, when comparing its historical volatility, Spindletop OG is 4.27 times less risky than FEC Resources. The pink sheet trades about -0.08 of its potential returns per unit of risk. The FEC Resources is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  0.17  in FEC Resources on September 18, 2024 and sell it today you would lose (0.01) from holding FEC Resources or give up 5.88% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Spindletop OG  vs.  FEC Resources

Spindletop OG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Spindletop OG has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

FEC Resources

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in FEC Resources are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, FEC Resources reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Spindletop and FEC Resources

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

The idea behind Spindletop OG and FEC Resources 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.