Correlation Between WisdomTree Investments and Federal Signal

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

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

Diversification Opportunities for WisdomTree Investments and Federal Signal

0.41

Correlation Coefficient

WisdomTree Investments  Federal Signal

Very weak diversification

The 3 months correlation between WisdomTree and Federal is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree Investments and Federal Signal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federal Signal and WisdomTree Investments 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 WisdomTree Investments 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 WisdomTree Investments i.e., WisdomTree Investments and Federal Signal go up and down completely randomly.

Pair Corralation between WisdomTree Investments and Federal Signal

Assuming the 90 days horizon WisdomTree Investments is expected to under-perform the Federal Signal. But the stock apears to be less risky and, when comparing its historical volatility, WisdomTree Investments is 1.72 times less risky than Federal Signal. The stock trades about -0.38 of its potential returns per unit of risk. The Federal Signal is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  8,650  in Federal Signal on October 22, 2024 and sell it today you would earn a total of  850.00  from holding Federal Signal or generate 9.83% return on investment over 90 days.

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

WisdomTree Investments  vs.  Federal Signal

WisdomTree Investments

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days WisdomTree Investments has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, WisdomTree Investments is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Federal Signal

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Federal Signal are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Federal Signal reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with WisdomTree Investments and Federal Signal

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

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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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.