Correlation Between Energy Recovery and Federal Signal
Can any of the company-specific risk be diversified away by investing in both Energy Recovery and Federal Signal 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 Energy Recovery and Federal Signal into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Energy Recovery and Federal Signal, you can compare the effects of market volatilities on Energy Recovery and Federal Signal 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 Energy Recovery with a short position of Federal Signal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Energy Recovery and Federal Signal.
Diversification Opportunities for Energy Recovery and Federal Signal
-0.48 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Energy and Federal is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Energy Recovery and Federal Signal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federal Signal and Energy Recovery 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 Energy Recovery are associated (or correlated) with Federal Signal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federal Signal has no effect on the direction of Energy Recovery i.e., Energy Recovery and Federal Signal go up and down completely randomly.
Pair Corralation between Energy Recovery and Federal Signal
Given the investment horizon of 90 days Energy Recovery is expected to under-perform the Federal Signal. In addition to that, Energy Recovery is 2.14 times more volatile than Federal Signal. It trades about -0.17 of its total potential returns per unit of risk. Federal Signal is currently generating about 0.01 per unit of volatility. If you would invest 8,188 in Federal Signal on January 24, 2024 and sell it today you would earn a total of 12.00 from holding Federal Signal or generate 0.15% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Energy Recovery vs. Federal Signal
Performance |
| Timeline |
| Energy Recovery |
| Federal Signal |
Energy Recovery and Federal Signal Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Energy Recovery and Federal Signal
The main advantage of trading using opposite Energy Recovery and Federal Signal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Energy Recovery position performs unexpectedly, Federal Signal 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 Signal will offset losses from the drop in Federal Signal's long position.| Energy Recovery vs. Federal Signal | Energy Recovery vs. Purecycle Technologies Holdings | Energy Recovery vs. Zurn Elkay Water | Energy Recovery vs. PureCycle Technologies |
| Federal Signal vs. Energy Recovery | Federal Signal vs. CECO Environmental Corp | Federal Signal vs. 374Water Common Stock | Federal Signal vs. CO2 Solutions |
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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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