Correlation Between Federal Agricultural and COMPASS MINERALS

Can any of the company-specific risk be diversified away by investing in both Federal Agricultural and COMPASS MINERALS 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 COMPASS MINERALS 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 COMPASS MINERALS, you can compare the effects of market volatilities on Federal Agricultural and COMPASS MINERALS 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 COMPASS MINERALS. Check out your portfolio center. Please also check ongoing floating volatility patterns of Federal Agricultural and COMPASS MINERALS.

Diversification Opportunities for Federal Agricultural and COMPASS MINERALS

0.49

Correlation Coefficient

Federal Agricultural  COMPASS MINERALS

Very weak diversification

The 3 months correlation between Federal and COMPASS is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Federal Agricultural Mortgage and COMPASS MINERALS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on COMPASS MINERALS 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 COMPASS MINERALS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of COMPASS MINERALS has no effect on the direction of Federal Agricultural i.e., Federal Agricultural and COMPASS MINERALS go up and down completely randomly.

Pair Corralation between Federal Agricultural and COMPASS MINERALS

Assuming the 90 days horizon Federal Agricultural Mortgage is expected to generate 0.35 times more return on investment than COMPASS MINERALS. However, Federal Agricultural Mortgage is 2.87 times less risky than COMPASS MINERALS. It trades about -0.31 of its potential returns per unit of risk. COMPASS MINERALS is currently generating about -0.18 per unit of risk. If you would invest  20,259  in Federal Agricultural Mortgage on October 9, 2024 and sell it today you would lose (1,659) from holding Federal Agricultural Mortgage or give up 8.19% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	94.12%
Values	Daily Returns

Federal Agricultural Mortgage  vs.  COMPASS MINERALS

Federal Agricultural

Risk-Adjusted Performance

7 of 100

OK

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 unsteady basic indicators, Federal Agricultural reported solid returns over the last few months and may actually be approaching a breakup point.

COMPASS MINERALS

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in COMPASS MINERALS are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, COMPASS MINERALS is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Federal Agricultural and COMPASS MINERALS

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

The idea behind Federal Agricultural Mortgage and COMPASS MINERALS 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.