Correlation Between Advanced Emissions and Federal Signal
Can any of the company-specific risk be diversified away by investing in both Advanced Emissions and Federal Signal 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 Advanced Emissions and Federal Signal into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Advanced Emissions Solutions and Federal Signal, you can compare the effects of market volatilities on Advanced Emissions and Federal Signal 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 Advanced Emissions with a short position of Federal Signal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Advanced Emissions and Federal Signal.
Diversification Opportunities for Advanced Emissions and Federal Signal
0.03 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Advanced and Federal is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Advanced Emissions Solutions and Federal Signal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federal Signal and Advanced Emissions 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 Advanced Emissions Solutions are associated (or correlated) with Federal Signal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federal Signal has no effect on the direction of Advanced Emissions i.e., Advanced Emissions and Federal Signal go up and down completely randomly.
Pair Corralation between Advanced Emissions and Federal Signal
Given the investment horizon of 90 days Advanced Emissions Solutions is expected to generate 3.45 times more return on investment than Federal Signal. However, Advanced Emissions is 3.45 times more volatile than Federal Signal. It trades about 0.03 of its potential returns per unit of risk. Federal Signal is currently generating about 0.09 per unit of risk. If you would invest 262.00 in Advanced Emissions Solutions on August 27, 2024 and sell it today you would lose (2.00) from holding Advanced Emissions Solutions or give up 0.76% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 31.85% |
| Values | Daily Returns |
Advanced Emissions Solutions vs. Federal Signal
Performance |
| Timeline |
| Advanced Emissions |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
| Federal Signal |
Advanced Emissions and Federal Signal Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Advanced Emissions and Federal Signal
The main advantage of trading using opposite Advanced Emissions and Federal Signal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Advanced Emissions position performs unexpectedly, Federal Signal 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 Federal Signal will offset losses from the drop in Federal Signal's long position.| Advanced Emissions vs. Vow ASA | Advanced Emissions vs. Seychelle Environmtl | Advanced Emissions vs. Eestech | Advanced Emissions vs. Energy and Water |
| Federal Signal vs. Energy Recovery | Federal Signal vs. CECO Environmental Corp | Federal Signal vs. 374Water Common Stock | Federal Signal vs. CO2 Solutions |
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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
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