Correlation Between Federal National and Black Knight

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Can any of the company-specific risk be diversified away by investing in both Federal National and Black Knight 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 National and Black Knight into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Federal National Mortgage and Black Knight, you can compare the effects of market volatilities on Federal National and Black Knight 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 National with a short position of Black Knight. Check out your portfolio center. Please also check ongoing floating volatility patterns of Federal National and Black Knight.

Diversification Opportunities for Federal National and Black Knight

  Correlation Coefficient

Pay attention - limited upside

The 3 months correlation between Federal and Black is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Federal National Mortgage and Black Knight in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Black Knight and Federal National 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 National Mortgage are associated (or correlated) with Black Knight. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Black Knight has no effect on the direction of Federal National i.e., Federal National and Black Knight go up and down completely randomly.

Pair Corralation between Federal National and Black Knight

Assuming the 90 days horizon Federal National Mortgage is expected to generate 3.14 times more return on investment than Black Knight. However, Federal National is 3.14 times more volatile than Black Knight. It trades about 0.04 of its potential returns per unit of risk. Black Knight is currently generating about 0.03 per unit of risk. If you would invest  1,015,000  in Federal National Mortgage on February 18, 2024 and sell it today you would earn a total of  335,000  from holding Federal National Mortgage or generate 33.0% return on investment over 90 days.
Time Period3 Months [change]
ValuesDaily Returns

Federal National Mortgage  vs.  Black Knight

Federal National Mortgage 

Risk-Adjusted Performance

14 of 100

Compared to the overall equity markets, risk-adjusted returns on investments in Federal National Mortgage are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting technical and fundamental indicators, Federal National displayed solid returns over the last few months and may actually be approaching a breakup point.
Black Knight 

Risk-Adjusted Performance

0 of 100

Very Weak
Over the last 90 days Black Knight has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong forward-looking signals, Black Knight is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Federal National and Black Knight Volatility Contrast

   Predicted Return Density   

Pair Trading with Federal National and Black Knight

The main advantage of trading using opposite Federal National and Black Knight positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Federal National position performs unexpectedly, Black Knight 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 Black Knight will offset losses from the drop in Black Knight's long position.
The idea behind Federal National Mortgage and Black Knight 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.

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