Correlation Between Federal Agricultural and Charter Communications

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

Diversification Opportunities for Federal Agricultural and Charter Communications

0.86

Correlation Coefficient

Federal Agricultural  Charter Communications

Very poor diversification

The 3 months correlation between Federal and Charter is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Federal Agricultural Mortgage and Charter Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Charter Communications 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 Charter Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Charter Communications has no effect on the direction of Federal Agricultural i.e., Federal Agricultural and Charter Communications go up and down completely randomly.

Pair Corralation between Federal Agricultural and Charter Communications

Assuming the 90 days horizon Federal Agricultural Mortgage is expected to generate 0.97 times more return on investment than Charter Communications. However, Federal Agricultural Mortgage is 1.03 times less risky than Charter Communications. It trades about 0.06 of its potential returns per unit of risk. Charter Communications is currently generating about 0.01 per unit of risk. If you would invest  10,600  in Federal Agricultural Mortgage on October 5, 2024 and sell it today you would earn a total of  8,200  from holding Federal Agricultural Mortgage or generate 77.36% return on investment over 90 days.

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

Federal Agricultural Mortgage  vs.  Charter Communications

Federal Agricultural

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days Federal Agricultural Mortgage has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly unsteady basic indicators, Federal Agricultural reported solid returns over the last few months and may actually be approaching a breakup point.

Charter Communications

Risk-Adjusted Performance

0 of 100

Modest

Over the last 90 days Charter Communications has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively fragile basic indicators, Charter Communications unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Federal Agricultural and Charter Communications

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

The idea behind Federal Agricultural Mortgage and Charter Communications 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.