Correlation Between Federal Agricultural and Sterling Construction

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

Diversification Opportunities for Federal Agricultural and Sterling Construction

0.11

Correlation Coefficient

Federal Agricultural  Sterling Construction

Average diversification

The 3 months correlation between Federal and Sterling is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Federal Agricultural Mortgage and Sterling Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sterling Construction 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 Sterling Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sterling Construction has no effect on the direction of Federal Agricultural i.e., Federal Agricultural and Sterling Construction go up and down completely randomly.

Pair Corralation between Federal Agricultural and Sterling Construction

Assuming the 90 days horizon Federal Agricultural Mortgage is expected to generate 0.33 times more return on investment than Sterling Construction. However, Federal Agricultural Mortgage is 3.06 times less risky than Sterling Construction. It trades about -0.04 of its potential returns per unit of risk. Sterling Construction is currently generating about -0.11 per unit of risk. If you would invest  18,651  in Federal Agricultural Mortgage on December 29, 2024 and sell it today you would lose (951.00) from holding Federal Agricultural Mortgage or give up 5.1% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Federal Agricultural Mortgage  vs.  Sterling Construction

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 newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Sterling Construction

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sterling Construction has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Federal Agricultural and Sterling Construction

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

The idea behind Federal Agricultural Mortgage and Sterling Construction 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.