Correlation Between Federal Agricultural and UNITED UTILITIES

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

Diversification Opportunities for Federal Agricultural and UNITED UTILITIES

0.54

Correlation Coefficient

Federal Agricultural  UNITED UTILITIES

Very weak diversification

The 3 months correlation between Federal and UNITED is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Federal Agricultural Mortgage and UNITED UTILITIES GR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on UNITED UTILITIES 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 UNITED UTILITIES. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of UNITED UTILITIES has no effect on the direction of Federal Agricultural i.e., Federal Agricultural and UNITED UTILITIES go up and down completely randomly.

Pair Corralation between Federal Agricultural and UNITED UTILITIES

Assuming the 90 days horizon Federal Agricultural Mortgage is expected to under-perform the UNITED UTILITIES. In addition to that, Federal Agricultural is 1.04 times more volatile than UNITED UTILITIES GR. It trades about -0.07 of its total potential returns per unit of risk. UNITED UTILITIES GR is currently generating about -0.06 per unit of volatility. If you would invest  1,240  in UNITED UTILITIES GR on December 22, 2024 and sell it today you would lose (80.00) from holding UNITED UTILITIES GR or give up 6.45% of portfolio value over 90 days.

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

Federal Agricultural Mortgage  vs.  UNITED UTILITIES GR

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 latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

UNITED UTILITIES

Risk-Adjusted Performance

Very Weak

Over the last 90 days UNITED UTILITIES GR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, UNITED UTILITIES is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Federal Agricultural and UNITED UTILITIES

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

The idea behind Federal Agricultural Mortgage and UNITED UTILITIES GR 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.