Correlation Between Commercial Metals and Federal Home
Can any of the company-specific risk be diversified away by investing in both Commercial Metals and Federal Home 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 Commercial Metals and Federal Home into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Commercial Metals and Federal Home Loan, you can compare the effects of market volatilities on Commercial Metals and Federal Home 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 Commercial Metals with a short position of Federal Home. Check out your portfolio center. Please also check ongoing floating volatility patterns of Commercial Metals and Federal Home.
Diversification Opportunities for Commercial Metals and Federal Home
0.81 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Commercial and Federal is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Commercial Metals and Federal Home Loan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federal Home Loan and Commercial Metals 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 Commercial Metals are associated (or correlated) with Federal Home. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federal Home Loan has no effect on the direction of Commercial Metals i.e., Commercial Metals and Federal Home go up and down completely randomly.
Pair Corralation between Commercial Metals and Federal Home
Considering the 90-day investment horizon Commercial Metals is expected to generate 4.38 times less return on investment than Federal Home. But when comparing it to its historical volatility, Commercial Metals is 2.82 times less risky than Federal Home. It trades about 0.08 of its potential returns per unit of risk. Federal Home Loan is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest 317.00 in Federal Home Loan on August 25, 2024 and sell it today you would earn a total of 1,183 from holding Federal Home Loan or generate 373.19% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 99.63% |
| Values | Daily Returns |
Commercial Metals vs. Federal Home Loan
Performance |
| Timeline |
| Commercial Metals |
| Federal Home Loan |
Commercial Metals and Federal Home Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Commercial Metals and Federal Home
The main advantage of trading using opposite Commercial Metals and Federal Home positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Commercial Metals position performs unexpectedly, Federal Home 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 Home will offset losses from the drop in Federal Home's long position.| Commercial Metals vs. Olympic Steel | Commercial Metals vs. Steel Dynamics | Commercial Metals vs. Nucor Corp | Commercial Metals vs. Universal Stainless Alloy |
| Federal Home vs. Federal Home Loan | Federal Home vs. Federal Home Loan | Federal Home vs. Federal Home Loan | Federal Home vs. Federal Home Loan |
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 Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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