Can any of the company-specific risk be diversified away by investing in both Fomento Economico and ConAgra Foods 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 Fomento Economico and ConAgra Foods into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Fomento Economico Mexicano and ConAgra Foods, you can compare the effects of market volatilities on Fomento Economico and ConAgra Foods 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 Fomento Economico with a short position of ConAgra Foods. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fomento Economico and ConAgra Foods.
Diversification Opportunities for Fomento Economico and ConAgra Foods
The 3 months correlation between Fomento and ConAgra is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Fomento Economico Mexicano and ConAgra Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ConAgra Foods and Fomento Economico 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 Fomento Economico Mexicano are associated (or correlated) with ConAgra Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ConAgra Foods has no effect on the direction of Fomento Economico i.e., Fomento Economico and ConAgra Foods go up and down completely randomly.
Pair Corralation between Fomento Economico and ConAgra Foods
Considering the 90-day investment horizon Fomento Economico Mexicano is expected to under-perform the ConAgra Foods. In addition to that, Fomento Economico is 1.56 times more volatile than ConAgra Foods. It trades about -0.31 of its total potential returns per unit of risk. ConAgra Foods is currently generating about -0.07 per unit of volatility. If you would invest 3,019 in ConAgra Foods on March 6, 2024 and sell it today you would lose (56.00) from holding ConAgra Foods or give up 1.85% of portfolio value over 90 days.
Over the last 90 days Fomento Economico Mexicano has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's primary indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.
Compared to the overall equity markets, risk-adjusted returns on investments in ConAgra Foods are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, ConAgra Foods may actually be approaching a critical reversion point that can send shares even higher in July 2024.