Correlation Between Federal Agricultural and HYDROFARM HLD

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

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

Diversification Opportunities for Federal Agricultural and HYDROFARM HLD

0.18

Correlation Coefficient

Federal Agricultural  HYDROFARM HLD

Average diversification

The 3 months correlation between Federal and HYDROFARM is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Federal Agricultural Mortgage and HYDROFARM HLD GRP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HYDROFARM HLD GRP and Federal Agricultural 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 Agricultural Mortgage are associated (or correlated) with HYDROFARM HLD. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HYDROFARM HLD GRP has no effect on the direction of Federal Agricultural i.e., Federal Agricultural and HYDROFARM HLD go up and down completely randomly.

Pair Corralation between Federal Agricultural and HYDROFARM HLD

Assuming the 90 days horizon Federal Agricultural Mortgage is expected to under-perform the HYDROFARM HLD. But the stock apears to be less risky and, when comparing its historical volatility, Federal Agricultural Mortgage is 4.73 times less risky than HYDROFARM HLD. The stock trades about -0.09 of its potential returns per unit of risk. The HYDROFARM HLD GRP is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  57.00  in HYDROFARM HLD GRP on October 22, 2024 and sell it today you would lose (1.00) from holding HYDROFARM HLD GRP or give up 1.75% of portfolio value over 90 days.

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

Federal Agricultural Mortgage  vs.  HYDROFARM HLD GRP

Federal Agricultural

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Federal Agricultural Mortgage are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Federal Agricultural reported solid returns over the last few months and may actually be approaching a breakup point.

HYDROFARM HLD GRP

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Federal Agricultural and HYDROFARM HLD

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

The idea behind Federal Agricultural Mortgage and HYDROFARM HLD GRP 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.