Correlation Between Federal Signal and Umicore SA
Can any of the company-specific risk be diversified away by investing in both Federal Signal and Umicore SA 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 Umicore SA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Federal Signal and Umicore SA ADR, you can compare the effects of market volatilities on Federal Signal and Umicore SA 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 Umicore SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Federal Signal and Umicore SA.
Diversification Opportunities for Federal Signal and Umicore SA
0.04 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Federal and Umicore is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Federal Signal and Umicore SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Umicore SA ADR 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 Umicore SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Umicore SA ADR has no effect on the direction of Federal Signal i.e., Federal Signal and Umicore SA go up and down completely randomly.
Pair Corralation between Federal Signal and Umicore SA
Considering the 90-day investment horizon Federal Signal is expected to generate 0.86 times more return on investment than Umicore SA. However, Federal Signal is 1.17 times less risky than Umicore SA. It trades about 0.32 of its potential returns per unit of risk. Umicore SA ADR is currently generating about -0.21 per unit of risk. If you would invest 8,467 in Federal Signal on August 31, 2024 and sell it today you would earn a total of 1,321 from holding Federal Signal or generate 15.6% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Federal Signal vs. Umicore SA ADR
Performance |
| Timeline |
| Federal Signal |
| Umicore SA ADR |
Federal Signal and Umicore SA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Federal Signal and Umicore SA
The main advantage of trading using opposite Federal Signal and Umicore SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Federal Signal position performs unexpectedly, Umicore SA 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 Umicore SA will offset losses from the drop in Umicore SA'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 |
| Umicore SA vs. Eestech | Umicore SA vs. Energy and Water | Umicore SA vs. One World Universe | Umicore SA 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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