Correlation Between Federal Signal and CECO Environmental
Can any of the company-specific risk be diversified away by investing in both Federal Signal and CECO Environmental 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 Signal and CECO Environmental into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Federal Signal and CECO Environmental Corp, you can compare the effects of market volatilities on Federal Signal and CECO Environmental 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 Signal with a short position of CECO Environmental. Check out your portfolio center. Please also check ongoing floating volatility patterns of Federal Signal and CECO Environmental.
Diversification Opportunities for Federal Signal and CECO Environmental
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Federal and CECO is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Federal Signal and CECO Environmental Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CECO Environmental Corp and Federal Signal 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 Signal are associated (or correlated) with CECO Environmental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CECO Environmental Corp has no effect on the direction of Federal Signal i.e., Federal Signal and CECO Environmental go up and down completely randomly.
Pair Corralation between Federal Signal and CECO Environmental
Considering the 90-day investment horizon Federal Signal is expected to generate 1.3 times less return on investment than CECO Environmental. But when comparing it to its historical volatility, Federal Signal is 1.74 times less risky than CECO Environmental. It trades about 0.08 of its potential returns per unit of risk. CECO Environmental Corp is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 1,438 in CECO Environmental Corp on October 31, 2024 and sell it today you would earn a total of 1,438 from holding CECO Environmental Corp or generate 99.97% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Federal Signal vs. CECO Environmental Corp
Performance |
| Timeline |
| Federal Signal |
| CECO Environmental Corp |
Federal Signal and CECO Environmental Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Federal Signal and CECO Environmental
The main advantage of trading using opposite Federal Signal and CECO Environmental positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Federal Signal position performs unexpectedly, CECO Environmental 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 CECO Environmental will offset losses from the drop in CECO Environmental's long position.| Federal Signal vs. Energy Recovery | Federal Signal vs. CECO Environmental Corp | Federal Signal vs. 374Water Common Stock | Federal Signal vs. CO2 Solutions |
| CECO Environmental vs. Federal Signal | CECO Environmental vs. Zurn Elkay Water | CECO Environmental vs. Fuel Tech | CECO Environmental vs. Energy Recovery |
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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.
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