Correlation Between FMC and Realty Income
Can any of the company-specific risk be diversified away by investing in both FMC and Realty Income 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 FMC and Realty Income into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between FMC Corporation and Realty Income Corp, you can compare the effects of market volatilities on FMC and Realty Income 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 FMC with a short position of Realty Income. Check out your portfolio center. Please also check ongoing floating volatility patterns of FMC and Realty Income.
Diversification Opportunities for FMC and Realty Income
0.16 | Correlation Coefficient |
Average diversification
The 3 months correlation between FMC and Realty is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding FMC Corp. and Realty Income Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Realty me Corp and FMC 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 FMC Corporation are associated (or correlated) with Realty Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Realty me Corp has no effect on the direction of FMC i.e., FMC and Realty Income go up and down completely randomly.
Pair Corralation between FMC and Realty Income
Considering the 90-day investment horizon FMC Corporation is expected to under-perform the Realty Income. In addition to that, FMC is 2.26 times more volatile than Realty Income Corp. It trades about -0.08 of its total potential returns per unit of risk. Realty Income Corp is currently generating about -0.02 per unit of volatility. If you would invest 5,744 in Realty Income Corp on January 25, 2024 and sell it today you would lose (377.00) from holding Realty Income Corp or give up 6.56% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
FMC Corp. vs. Realty Income Corp
Performance |
| Timeline |
| FMC Corporation |
| Realty me Corp |
FMC and Realty Income Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with FMC and Realty Income
The main advantage of trading using opposite FMC and Realty Income positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if FMC position performs unexpectedly, Realty Income 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 Realty Income will offset losses from the drop in Realty Income's long position.The idea behind FMC Corporation and Realty Income Corp 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.Check out your portfolio center.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.
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