Correlation Between FMC and Danakali

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

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

Diversification Opportunities for FMC and Danakali

-0.11

Correlation Coefficient

FMC  Danakali

Good diversification

The 3 months correlation between FMC and Danakali is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding FMC Corp. and Danakali Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Danakali Limited 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 Danakali. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Danakali Limited has no effect on the direction of FMC i.e., FMC and Danakali go up and down completely randomly.

Pair Corralation between FMC and Danakali

Considering the 90-day investment horizon FMC Corporation is expected to under-perform the Danakali. But the stock apears to be less risky and, when comparing its historical volatility, FMC Corporation is 3.06 times less risky than Danakali. The stock trades about -0.04 of its potential returns per unit of risk. The Danakali Limited is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  17.00  in Danakali Limited on January 25, 2024 and sell it today you would earn a total of  7.00  from holding Danakali Limited or generate 41.18% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	56.7%
Values	Daily Returns

FMC Corp.  vs.  Danakali Limited

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 inconsistent primary indicators, FMC may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Danakali Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Danakali Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong essential indicators, Danakali is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with FMC and Danakali

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

The idea behind FMC Corporation and Danakali Limited 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.