Correlation Between Federal Agricultural and GBS Software

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

Diversification Opportunities for Federal Agricultural and GBS Software

0.29

Correlation Coefficient

Federal Agricultural  GBS Software

Modest diversification

The 3 months correlation between Federal and GBS is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Federal Agricultural Mortgage and GBS Software AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GBS Software AG 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 GBS Software. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GBS Software AG has no effect on the direction of Federal Agricultural i.e., Federal Agricultural and GBS Software go up and down completely randomly.

Pair Corralation between Federal Agricultural and GBS Software

Assuming the 90 days horizon Federal Agricultural Mortgage is expected to generate 0.97 times more return on investment than GBS Software. However, Federal Agricultural Mortgage is 1.03 times less risky than GBS Software. It trades about 0.06 of its potential returns per unit of risk. GBS Software AG is currently generating about 0.04 per unit of risk. If you would invest  10,412  in Federal Agricultural Mortgage on October 11, 2024 and sell it today you would earn a total of  7,888  from holding Federal Agricultural Mortgage or generate 75.76% return on investment over 90 days.

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

Federal Agricultural Mortgage  vs.  GBS Software AG

Federal Agricultural

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Federal Agricultural Mortgage are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Federal Agricultural may actually be approaching a critical reversion point that can send shares even higher in February 2025.

GBS Software AG

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in GBS Software AG are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, GBS Software unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Federal Agricultural and GBS Software

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

The idea behind Federal Agricultural Mortgage and GBS Software AG 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.