Correlation Between FMC and China Green

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

By analyzing existing cross correlation between FMC Corporation and China Green Agriculture, you can compare the effects of market volatilities on FMC and China Green 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 China Green. Check out your portfolio center. Please also check ongoing floating volatility patterns of FMC and China Green.

Diversification Opportunities for FMC and China Green

0.4

Correlation Coefficient

FMC  China Green

Very weak diversification

The 3 months correlation between FMC and China is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding FMC Corp. and China Green Agriculture in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Green Agriculture 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 China Green. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Green Agriculture has no effect on the direction of FMC i.e., FMC and China Green go up and down completely randomly.

Pair Corralation between FMC and China Green

Considering the 90-day investment horizon FMC Corporation is expected to under-perform the China Green. But the stock apears to be less risky and, when comparing its historical volatility, FMC Corporation is 1.92 times less risky than China Green. The stock trades about -0.09 of its potential returns per unit of risk. The China Green Agriculture is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  288.00  in China Green Agriculture on January 25, 2024 and sell it today you would earn a total of  17.00  from holding China Green Agriculture or generate 5.9% return on investment over 90 days.

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

FMC Corp.  vs.  China Green Agriculture

FMC Corporation

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in FMC Corporation are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound primary indicators, FMC is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

China Green Agriculture

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Green Agriculture are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat inconsistent technical and fundamental indicators, China Green sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with FMC and China Green

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

The idea behind FMC Corporation and China Green Agriculture 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.