Correlation Between Federal Agricultural and Sims Metal
Can any of the company-specific risk be diversified away by investing in both Federal Agricultural and Sims Metal 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 Federal Agricultural and Sims Metal into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Federal Agricultural Mortgage and Sims Metal Management, you can compare the effects of market volatilities on Federal Agricultural and Sims Metal 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 Federal Agricultural with a short position of Sims Metal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Federal Agricultural and Sims Metal.
Diversification Opportunities for Federal Agricultural and Sims Metal
-0.06 | Correlation Coefficient |
Good diversification
The 3 months correlation between Federal and Sims is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding Federal Agricultural Mortgage and Sims Metal Management in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sims Metal Management and Federal Agricultural 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 Federal Agricultural Mortgage are associated (or correlated) with Sims Metal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sims Metal Management has no effect on the direction of Federal Agricultural i.e., Federal Agricultural and Sims Metal go up and down completely randomly.
Pair Corralation between Federal Agricultural and Sims Metal
Assuming the 90 days horizon Federal Agricultural Mortgage is expected to under-perform the Sims Metal. But the stock apears to be less risky and, when comparing its historical volatility, Federal Agricultural Mortgage is 1.42 times less risky than Sims Metal. The stock trades about -0.11 of its potential returns per unit of risk. The Sims Metal Management is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 760.00 in Sims Metal Management on October 16, 2024 and sell it today you would earn a total of 40.00 from holding Sims Metal Management or generate 5.26% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 97.37% |
| Values | Daily Returns |
Federal Agricultural Mortgage vs. Sims Metal Management
Performance |
| Timeline |
| Federal Agricultural |
| Sims Metal Management |
Federal Agricultural and Sims Metal Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Federal Agricultural and Sims Metal
The main advantage of trading using opposite Federal Agricultural and Sims Metal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Federal Agricultural position performs unexpectedly, Sims Metal 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 Sims Metal will offset losses from the drop in Sims Metal's long position.| Federal Agricultural vs. SIDETRADE EO 1 | Federal Agricultural vs. Indutrade AB | Federal Agricultural vs. SLR Investment Corp | Federal Agricultural vs. Chuangs China Investments |
| Sims Metal vs. Jacquet Metal Service | Sims Metal vs. De Grey Mining | Sims Metal vs. Federal Agricultural Mortgage | Sims Metal vs. Dairy Farm International |
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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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