Correlation Between Federal Agricultural and Nelnet

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

Diversification Opportunities for Federal Agricultural and Nelnet

0.53

Correlation Coefficient

Federal Agricultural  Nelnet

Very weak diversification

The 3 months correlation between Federal and Nelnet is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Federal Agricultural Mortgage and Nelnet Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nelnet Inc 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 Nelnet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nelnet Inc has no effect on the direction of Federal Agricultural i.e., Federal Agricultural and Nelnet go up and down completely randomly.

Pair Corralation between Federal Agricultural and Nelnet

Assuming the 90 days trading horizon Federal Agricultural Mortgage is expected to under-perform the Nelnet. But the preferred stock apears to be less risky and, when comparing its historical volatility, Federal Agricultural Mortgage is 4.1 times less risky than Nelnet. The preferred stock trades about -0.04 of its potential returns per unit of risk. The Nelnet Inc is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  11,184  in Nelnet Inc on September 4, 2024 and sell it today you would lose (195.00) from holding Nelnet Inc or give up 1.74% 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.  Nelnet Inc

Federal Agricultural

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Federal Agricultural Mortgage has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound primary indicators, Federal Agricultural is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Nelnet Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nelnet Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Nelnet is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Federal Agricultural and Nelnet

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

The idea behind Federal Agricultural Mortgage and Nelnet Inc 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.