Correlation Between LiqTech International and Federal Signal

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

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

Diversification Opportunities for LiqTech International and Federal Signal

-0.7

Correlation Coefficient

LiqTech International  Federal Signal

Excellent diversification

The 3 months correlation between LiqTech and Federal is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding LiqTech International and Federal Signal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federal Signal and LiqTech International 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 LiqTech International 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 LiqTech International i.e., LiqTech International and Federal Signal go up and down completely randomly.

Pair Corralation between LiqTech International and Federal Signal

Given the investment horizon of 90 days LiqTech International is expected to under-perform the Federal Signal. In addition to that, LiqTech International is 2.39 times more volatile than Federal Signal. It trades about -0.04 of its total potential returns per unit of risk. Federal Signal is currently generating about 0.12 per unit of volatility. If you would invest  3,332  in Federal Signal on January 26, 2024 and sell it today you would earn a total of  5,001  from holding Federal Signal or generate 150.09% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

LiqTech International  vs.  Federal Signal

LiqTech International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LiqTech International has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in May 2024. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Federal Signal

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Federal Signal are ranked lower than 7 (%) 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.

Pair Trading with LiqTech International and Federal Signal

The main advantage of trading using opposite LiqTech International and Federal Signal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LiqTech International 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.

The idea behind LiqTech International and Federal Signal 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.

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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.