Correlation Between Federal Agricultural and Nokia

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

Diversification Opportunities for Federal Agricultural and Nokia

-0.41

Correlation Coefficient

Federal Agricultural  Nokia

Very good diversification

The 3 months correlation between Federal and Nokia is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Federal Agricultural Mortgage and Nokia in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nokia 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 Nokia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nokia has no effect on the direction of Federal Agricultural i.e., Federal Agricultural and Nokia go up and down completely randomly.

Pair Corralation between Federal Agricultural and Nokia

Assuming the 90 days horizon Federal Agricultural is expected to generate 30.96 times less return on investment than Nokia. But when comparing it to its historical volatility, Federal Agricultural Mortgage is 1.22 times less risky than Nokia. It trades about 0.01 of its potential returns per unit of risk. Nokia is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  401.00  in Nokia on December 4, 2024 and sell it today you would earn a total of  61.00  from holding Nokia or generate 15.21% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.33%
Values	Daily Returns

Federal Agricultural Mortgage  vs.  Nokia

Federal Agricultural

Risk-Adjusted Performance

Very Weak

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

Nokia

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nokia are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Nokia reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Federal Agricultural and Nokia

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

The idea behind Federal Agricultural Mortgage and Nokia 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.