Correlation Between Federal Signal and Energy
Can any of the company-specific risk be diversified away by investing in both Federal Signal and Energy 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 Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Federal Signal and Energy and Water, you can compare the effects of market volatilities on Federal Signal and Energy 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 Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Federal Signal and Energy.
Diversification Opportunities for Federal Signal and Energy
0.07 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Federal and Energy is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Federal Signal and Energy and Water in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Energy and Water 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 Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Energy and Water has no effect on the direction of Federal Signal i.e., Federal Signal and Energy go up and down completely randomly.
Pair Corralation between Federal Signal and Energy
Considering the 90-day investment horizon Federal Signal is expected to generate 2.75 times less return on investment than Energy. But when comparing it to its historical volatility, Federal Signal is 7.75 times less risky than Energy. It trades about 0.08 of its potential returns per unit of risk. Energy and Water is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 4.77 in Energy and Water on November 19, 2024 and sell it today you would lose (4.40) from holding Energy and Water or give up 92.24% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 99.8% |
| Values | Daily Returns |
Federal Signal vs. Energy and Water
Performance |
| Timeline |
| Federal Signal |
| Energy and Water |
Federal Signal and Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Federal Signal and Energy
The main advantage of trading using opposite Federal Signal and Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Federal Signal position performs unexpectedly, Energy 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 Energy will offset losses from the drop in Energy'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 |
| Energy vs. Vow ASA | Energy vs. Eestech | Energy vs. One World Universe | Energy vs. Bion Environmental Technologies |
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 Anywhere module to track or share privately all of your investments from the convenience of any device.
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