Correlation Between Federal Signal and Select Energy
Can any of the company-specific risk be diversified away by investing in both Federal Signal and Select 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 Select 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 Select Energy Services, you can compare the effects of market volatilities on Federal Signal and Select 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 Select Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Federal Signal and Select Energy.
Diversification Opportunities for Federal Signal and Select Energy
0.85 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Federal and Select is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Federal Signal and Select Energy Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Select Energy Services 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 Select Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Select Energy Services has no effect on the direction of Federal Signal i.e., Federal Signal and Select Energy go up and down completely randomly.
Pair Corralation between Federal Signal and Select Energy
Considering the 90-day investment horizon Federal Signal is expected to generate 1.0 times more return on investment than Select Energy. However, Federal Signal is 1.0 times more volatile than Select Energy Services. It trades about 0.09 of its potential returns per unit of risk. Select Energy Services is currently generating about 0.07 per unit of risk. If you would invest 8,188 in Federal Signal on January 25, 2024 and sell it today you would earn a total of 188.00 from holding Federal Signal or generate 2.3% 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. Select Energy Services
Performance |
| Timeline |
| Federal Signal |
| Select Energy Services |
Federal Signal and Select Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Federal Signal and Select Energy
The main advantage of trading using opposite Federal Signal and Select Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Federal Signal position performs unexpectedly, Select 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 Select Energy will offset losses from the drop in Select 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 |
| Select Energy vs. Orion Engineered Carbons | Select Energy vs. Element Solutions | Select Energy vs. Kronos Worldwide | Select Energy vs. FutureFuel Corp |
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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.
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