Correlation Between FMC and BBB Foods

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

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

Diversification Opportunities for FMC and BBB Foods

0.42

Correlation Coefficient

FMC  BBB Foods

Very weak diversification

The 3 months correlation between FMC and BBB is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding FMC Corp. and BBB Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BBB Foods 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 BBB Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BBB Foods has no effect on the direction of FMC i.e., FMC and BBB Foods go up and down completely randomly.

Pair Corralation between FMC and BBB Foods

Considering the 90-day investment horizon FMC Corporation is expected to under-perform the BBB Foods. But the stock apears to be less risky and, when comparing its historical volatility, FMC Corporation is 1.53 times less risky than BBB Foods. The stock trades about -0.03 of its potential returns per unit of risk. The BBB Foods is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  1,750  in BBB Foods on March 8, 2024 and sell it today you would earn a total of  585.00  from holding BBB Foods or generate 33.43% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	16.77%
Values	Daily Returns

FMC Corp.  vs.  BBB Foods

FMC Corporation

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days FMC Corporation has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

BBB Foods

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in BBB Foods are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat sluggish fundamental drivers, BBB Foods sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with FMC and BBB Foods

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

The idea behind FMC Corporation and BBB Foods 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.

Check out your portfolio center.

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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.