Correlation Between BBB Foods and Fomento Economico

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

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

Diversification Opportunities for BBB Foods and Fomento Economico

0.3

Correlation Coefficient

BBB Foods  Fomento Economico

Weak diversification

The 3 months correlation between BBB and Fomento is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding BBB Foods and Fomento Economico Mexicano in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fomento Economico and BBB Foods 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 BBB Foods are associated (or correlated) with Fomento Economico. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fomento Economico has no effect on the direction of BBB Foods i.e., BBB Foods and Fomento Economico go up and down completely randomly.

Pair Corralation between BBB Foods and Fomento Economico

Given the investment horizon of 90 days BBB Foods is expected to generate 2.18 times more return on investment than Fomento Economico. However, BBB Foods is 2.18 times more volatile than Fomento Economico Mexicano. It trades about -0.03 of its potential returns per unit of risk. Fomento Economico Mexicano is currently generating about -0.13 per unit of risk. If you would invest  3,137  in BBB Foods on September 20, 2024 and sell it today you would lose (249.00) from holding BBB Foods or give up 7.94% of portfolio value over 90 days.

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

BBB Foods  vs.  Fomento Economico Mexicano

BBB Foods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BBB Foods has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental drivers, BBB Foods is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Fomento Economico

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fomento Economico Mexicano has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's primary indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with BBB Foods and Fomento Economico

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

The idea behind BBB Foods and Fomento Economico Mexicano 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.