Correlation Between Select Energy and Federal Signal
Can any of the company-specific risk be diversified away by investing in both Select Energy 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 Select Energy and Federal Signal into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Select Energy Services and Federal Signal, you can compare the effects of market volatilities on Select Energy 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 Select Energy with a short position of Federal Signal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Select Energy and Federal Signal.
Diversification Opportunities for Select Energy and Federal Signal
0.88 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Select and Federal is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Select Energy Services and Federal Signal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federal Signal and Select Energy 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 Select Energy Services 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 Select Energy i.e., Select Energy and Federal Signal go up and down completely randomly.
Pair Corralation between Select Energy and Federal Signal
Given the investment horizon of 90 days Select Energy Services is expected to under-perform the Federal Signal. But the stock apears to be less risky and, when comparing its historical volatility, Select Energy Services is 1.0 times less risky than Federal Signal. The stock trades about -0.01 of its potential returns per unit of risk. The Federal Signal is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest 8,002 in Federal Signal on January 19, 2024 and sell it today you would earn a total of 165.00 from holding Federal Signal or generate 2.06% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Select Energy Services vs. Federal Signal
Performance |
| Timeline |
| Select Energy Services |
| Federal Signal |
Select Energy and Federal Signal Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Select Energy and Federal Signal
The main advantage of trading using opposite Select Energy and Federal Signal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Select Energy 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.| Select Energy vs. Orion Engineered Carbons | Select Energy vs. Element Solutions | Select Energy vs. Kronos Worldwide | Select Energy vs. FutureFuel Corp |
| 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.
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