Correlation Between Federal Signal and Tennant
Can any of the company-specific risk be diversified away by investing in both Federal Signal and Tennant 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 Tennant into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Federal Signal and Tennant Company, you can compare the effects of market volatilities on Federal Signal and Tennant 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 Tennant. Check out your portfolio center. Please also check ongoing floating volatility patterns of Federal Signal and Tennant.
Diversification Opportunities for Federal Signal and Tennant
0.85 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Federal and Tennant is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Federal Signal and Tennant Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tennant Company 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 Tennant. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tennant Company has no effect on the direction of Federal Signal i.e., Federal Signal and Tennant go up and down completely randomly.
Pair Corralation between Federal Signal and Tennant
Considering the 90-day investment horizon Federal Signal is expected to generate 1.05 times more return on investment than Tennant. However, Federal Signal is 1.05 times more volatile than Tennant Company. It trades about 0.13 of its potential returns per unit of risk. Tennant Company is currently generating about 0.11 per unit of risk. If you would invest 5,150 in Federal Signal on January 26, 2024 and sell it today you would earn a total of 3,183 from holding Federal Signal or generate 61.81% 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. Tennant Company
Performance |
| Timeline |
| Federal Signal |
| Tennant Company |
Federal Signal and Tennant Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Federal Signal and Tennant
The main advantage of trading using opposite Federal Signal and Tennant positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Federal Signal position performs unexpectedly, Tennant 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 Tennant will offset losses from the drop in Tennant'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 |
| Tennant vs. Parker Hannifin | Tennant vs. Emerson Electric | Tennant vs. Smith AO | Tennant vs. Watts Water 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..
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