Correlation Between Federal Agricultural and SLM Corp

Can any of the company-specific risk be diversified away by investing in both Federal Agricultural and SLM Corp 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 Agricultural and SLM Corp into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Federal Agricultural Mortgage and SLM Corp, you can compare the effects of market volatilities on Federal Agricultural and SLM Corp 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 Agricultural with a short position of SLM Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Federal Agricultural and SLM Corp.

Diversification Opportunities for Federal Agricultural and SLM Corp

0.91

Correlation Coefficient

Federal Agricultural  SLM Corp

Almost no diversification

The 3 months correlation between Federal and SLM is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Federal Agricultural Mortgage and SLM Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SLM Corp and Federal Agricultural 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 Agricultural Mortgage are associated (or correlated) with SLM Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SLM Corp has no effect on the direction of Federal Agricultural i.e., Federal Agricultural and SLM Corp go up and down completely randomly.

Pair Corralation between Federal Agricultural and SLM Corp

Considering the 90-day investment horizon Federal Agricultural Mortgage is expected to generate 0.92 times more return on investment than SLM Corp. However, Federal Agricultural Mortgage is 1.09 times less risky than SLM Corp. It trades about 0.08 of its potential returns per unit of risk. SLM Corp is currently generating about 0.06 per unit of risk. If you would invest  9,531  in Federal Agricultural Mortgage on June 23, 2024 and sell it today you would earn a total of  8,804  from holding Federal Agricultural Mortgage or generate 92.37% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

Federal Agricultural Mortgage  vs.  SLM Corp

Federal Agricultural

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Federal Agricultural Mortgage are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical and fundamental indicators, Federal Agricultural is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

SLM Corp

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in SLM Corp are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very weak essential indicators, SLM Corp may actually be approaching a critical reversion point that can send shares even higher in October 2024.

Pair Trading with Federal Agricultural and SLM Corp

The main advantage of trading using opposite Federal Agricultural and SLM Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Federal Agricultural position performs unexpectedly, SLM Corp 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 SLM Corp will offset losses from the drop in SLM Corp's long position.

The idea behind Federal Agricultural Mortgage and SLM Corp pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.