Correlation Between Freeport McMoran and Baxter International

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

By analyzing existing cross correlation between Freeport McMoran Copper Gold and Baxter International, you can compare the effects of market volatilities on Freeport McMoran and Baxter International 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 Freeport McMoran with a short position of Baxter International. Check out your portfolio center. Please also check ongoing floating volatility patterns of Freeport McMoran and Baxter International.

Diversification Opportunities for Freeport McMoran and Baxter International

0.34

Correlation Coefficient

Freeport McMoran  Baxter International

Weak diversification

The 3 months correlation between Freeport and Baxter is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Freeport McMoran Copper Gold and Baxter International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Baxter International and Freeport McMoran 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 Freeport McMoran Copper Gold are associated (or correlated) with Baxter International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Baxter International has no effect on the direction of Freeport McMoran i.e., Freeport McMoran and Baxter International go up and down completely randomly.

Pair Corralation between Freeport McMoran and Baxter International

Considering the 90-day investment horizon Freeport McMoran Copper Gold is expected to generate 1.21 times more return on investment than Baxter International. However, Freeport McMoran is 1.21 times more volatile than Baxter International. It trades about 0.07 of its potential returns per unit of risk. Baxter International is currently generating about -0.02 per unit of risk. If you would invest  3,866  in Freeport McMoran Copper Gold on January 24, 2024 and sell it today you would earn a total of  1,029  from holding Freeport McMoran Copper Gold or generate 26.62% return on investment over 90 days.

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

Freeport McMoran Copper Gold  vs.  Baxter International

Freeport McMoran Copper

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Freeport McMoran Copper Gold are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental indicators, Freeport McMoran showed solid returns over the last few months and may actually be approaching a breakup point.

Baxter International

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Baxter International are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Baxter International may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Freeport McMoran and Baxter International

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

The idea behind Freeport McMoran Copper Gold and Baxter International 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.