Correlation Between Federal Realty and Mercantile Investment

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

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

Diversification Opportunities for Federal Realty and Mercantile Investment

0.04

Correlation Coefficient

Federal Realty  Mercantile Investment

Significant diversification

The 3 months correlation between Federal and Mercantile is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Federal Realty Investment and The Mercantile Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on The Mercantile Investment and Federal Realty 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 Realty Investment are associated (or correlated) with Mercantile Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of The Mercantile Investment has no effect on the direction of Federal Realty i.e., Federal Realty and Mercantile Investment go up and down completely randomly.

Pair Corralation between Federal Realty and Mercantile Investment

Assuming the 90 days trading horizon Federal Realty Investment is expected to under-perform the Mercantile Investment. In addition to that, Federal Realty is 1.13 times more volatile than The Mercantile Investment. It trades about -0.13 of its total potential returns per unit of risk. The Mercantile Investment is currently generating about 0.03 per unit of volatility. If you would invest  23,597  in The Mercantile Investment on November 29, 2024 and sell it today you would earn a total of  353.00  from holding The Mercantile Investment or generate 1.5% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.08%
Values	Daily Returns

Federal Realty Investment  vs.  The Mercantile Investment

Federal Realty Investment

Risk-Adjusted Performance

Very Weak

Over the last 90 days Federal Realty Investment has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

The Mercantile Investment

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in The Mercantile Investment are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Mercantile Investment is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Federal Realty and Mercantile Investment

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

The idea behind Federal Realty Investment and The Mercantile Investment 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.