Correlation Between Federal Agricultural and EZCORP
Can any of the company-specific risk be diversified away by investing in both Federal Agricultural and EZCORP 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 EZCORP 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 EZCORP Inc, you can compare the effects of market volatilities on Federal Agricultural and EZCORP 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 EZCORP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Federal Agricultural and EZCORP.
Diversification Opportunities for Federal Agricultural and EZCORP
0.65 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Federal and EZCORP is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Federal Agricultural Mortgage and EZCORP Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EZCORP Inc 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 EZCORP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EZCORP Inc has no effect on the direction of Federal Agricultural i.e., Federal Agricultural and EZCORP go up and down completely randomly.
Pair Corralation between Federal Agricultural and EZCORP
Considering the 90-day investment horizon Federal Agricultural Mortgage is expected to generate 0.96 times more return on investment than EZCORP. However, Federal Agricultural Mortgage is 1.04 times less risky than EZCORP. It trades about 0.07 of its potential returns per unit of risk. EZCORP Inc is currently generating about 0.03 per unit of risk. If you would invest 11,467 in Federal Agricultural Mortgage on August 27, 2024 and sell it today you would earn a total of 9,042 from holding Federal Agricultural Mortgage or generate 78.85% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Federal Agricultural Mortgage vs. EZCORP Inc
Performance |
| Timeline |
| Federal Agricultural |
| EZCORP Inc |
Federal Agricultural and EZCORP Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Federal Agricultural and EZCORP
The main advantage of trading using opposite Federal Agricultural and EZCORP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Federal Agricultural position performs unexpectedly, EZCORP 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 EZCORP will offset losses from the drop in EZCORP's long position.The idea behind Federal Agricultural Mortgage and EZCORP Inc 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
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