Correlation Between Federal Agricultural and Old Market

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

Diversification Opportunities for Federal Agricultural and Old Market

0.61

Correlation Coefficient

Federal Agricultural  Old Market

Poor diversification

The 3 months correlation between Federal and Old is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Federal Agricultural Mortgage and Old Market Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Old Market Capital 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 Old Market. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Old Market Capital has no effect on the direction of Federal Agricultural i.e., Federal Agricultural and Old Market go up and down completely randomly.

Pair Corralation between Federal Agricultural and Old Market

Assuming the 90 days trading horizon Federal Agricultural Mortgage is expected to under-perform the Old Market. But the preferred stock apears to be less risky and, when comparing its historical volatility, Federal Agricultural Mortgage is 2.22 times less risky than Old Market. The preferred stock trades about -0.07 of its potential returns per unit of risk. The Old Market Capital is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  613.00  in Old Market Capital on September 13, 2024 and sell it today you would lose (18.00) from holding Old Market Capital or give up 2.94% of portfolio value over 90 days.

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

Federal Agricultural Mortgage  vs.  Old Market Capital

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. Despite nearly stable primary indicators, Federal Agricultural is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Old Market Capital

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Federal Agricultural and Old Market

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

The idea behind Federal Agricultural Mortgage and Old Market Capital 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.