Correlation Between Federal Signal and Energy Recovery

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

By analyzing existing cross correlation between Federal Signal and Energy Recovery, you can compare the effects of market volatilities on Federal Signal and Energy Recovery 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 Energy Recovery. Check out your portfolio center. Please also check ongoing floating volatility patterns of Federal Signal and Energy Recovery.

Diversification Opportunities for Federal Signal and Energy Recovery

-0.56

Correlation Coefficient

Federal Signal  Energy Recovery

Excellent diversification

The 3 months correlation between Federal and Energy is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Federal Signal and Energy Recovery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Energy Recovery 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 Energy Recovery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Energy Recovery has no effect on the direction of Federal Signal i.e., Federal Signal and Energy Recovery go up and down completely randomly.

Pair Corralation between Federal Signal and Energy Recovery

Considering the 90-day investment horizon Federal Signal is expected to generate 0.44 times more return on investment than Energy Recovery. However, Federal Signal is 2.28 times less risky than Energy Recovery. It trades about 0.09 of its potential returns per unit of risk. Energy Recovery is currently generating about -0.13 per unit of risk. 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 Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Federal Signal  vs.  Energy Recovery

Federal Signal

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Federal Signal are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent basic indicators, Federal Signal may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Energy Recovery

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Energy Recovery has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's forward indicators remain fairly strong which may send shares a bit higher in May 2024. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Federal Signal and Energy Recovery

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

The idea behind Federal Signal and Energy Recovery 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.