Correlation Between HUTCHMED DRC and Fomento Economico

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

By analyzing existing cross correlation between HUTCHMED DRC and Fomento Economico Mexicano, you can compare the effects of market volatilities on HUTCHMED DRC and Fomento Economico 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 HUTCHMED DRC with a short position of Fomento Economico. Check out your portfolio center. Please also check ongoing floating volatility patterns of HUTCHMED DRC and Fomento Economico.

Diversification Opportunities for HUTCHMED DRC and Fomento Economico

-0.7

Correlation Coefficient

HUTCHMED DRC  Fomento Economico

Excellent diversification

The 3 months correlation between HUTCHMED and Fomento is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding HUTCHMED DRC and Fomento Economico Mexicano in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fomento Economico and HUTCHMED DRC 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 HUTCHMED DRC are associated (or correlated) with Fomento Economico. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fomento Economico has no effect on the direction of HUTCHMED DRC i.e., HUTCHMED DRC and Fomento Economico go up and down completely randomly.

Pair Corralation between HUTCHMED DRC and Fomento Economico

Considering the 90-day investment horizon HUTCHMED DRC is expected to generate 2.59 times more return on investment than Fomento Economico. However, HUTCHMED DRC is 2.59 times more volatile than Fomento Economico Mexicano. It trades about 0.18 of its potential returns per unit of risk. Fomento Economico Mexicano is currently generating about -0.14 per unit of risk. If you would invest  1,693  in HUTCHMED DRC on February 3, 2024 and sell it today you would earn a total of  220.00  from holding HUTCHMED DRC or generate 12.99% return on investment over 90 days.

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

HUTCHMED DRC  vs.  Fomento Economico Mexicano

HUTCHMED DRC

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in HUTCHMED DRC are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very weak fundamental indicators, HUTCHMED DRC displayed solid returns over the last few months and may actually be approaching a breakup point.

Fomento Economico

Risk-Adjusted Performance

0 of 100

Very Weak

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 abnormal performance in the last few months, the Stock's primary indicators remain fairly strong which may send shares a bit higher in June 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with HUTCHMED DRC and Fomento Economico

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

The idea behind HUTCHMED DRC and Fomento Economico Mexicano 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.