Correlation Between World Energy and First Foundation

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

By analyzing existing cross correlation between World Energy Fund and First Foundation, you can compare the effects of market volatilities on World Energy and First Foundation 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 World Energy with a short position of First Foundation. Check out your portfolio center. Please also check ongoing floating volatility patterns of World Energy and First Foundation.

Diversification Opportunities for World Energy and First Foundation

-0.47

Correlation Coefficient

World Energy  First Foundation

Very good diversification

The 3 months correlation between World and First is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding World Energy Fund and First Foundation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Foundation and World Energy 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 World Energy Fund are associated (or correlated) with First Foundation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Foundation has no effect on the direction of World Energy i.e., World Energy and First Foundation go up and down completely randomly.

Pair Corralation between World Energy and First Foundation

Assuming the 90 days horizon World Energy Fund is expected to under-perform the First Foundation. But the mutual fund apears to be less risky and, when comparing its historical volatility, World Energy Fund is 3.04 times less risky than First Foundation. The mutual fund trades about -0.1 of its potential returns per unit of risk. The First Foundation is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  596.00  in First Foundation on February 28, 2024 and sell it today you would lose (4.00) from holding First Foundation or give up 0.67% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

World Energy Fund  vs.  First Foundation

World Energy

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in World Energy Fund are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, World Energy may actually be approaching a critical reversion point that can send shares even higher in June 2024.

First Foundation

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Foundation has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in June 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with World Energy and First Foundation

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

The idea behind World Energy Fund and First Foundation 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..