Correlation Between Federal Agricultural and Bread Financial

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

Diversification Opportunities for Federal Agricultural and Bread Financial

0.81

Correlation Coefficient

Federal Agricultural  Bread Financial

Very poor diversification

The 3 months correlation between Federal and Bread is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Federal Agricultural Mortgage and Bread Financial Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bread Financial Holdings 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 Bread Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bread Financial Holdings has no effect on the direction of Federal Agricultural i.e., Federal Agricultural and Bread Financial go up and down completely randomly.

Pair Corralation between Federal Agricultural and Bread Financial

Considering the 90-day investment horizon Federal Agricultural Mortgage is expected to under-perform the Bread Financial. But the stock apears to be less risky and, when comparing its historical volatility, Federal Agricultural Mortgage is 1.44 times less risky than Bread Financial. The stock trades about -0.47 of its potential returns per unit of risk. The Bread Financial Holdings is currently generating about -0.26 of returns per unit of risk over similar time horizon. If you would invest  6,635  in Bread Financial Holdings on October 12, 2024 and sell it today you would lose (707.00) from holding Bread Financial Holdings or give up 10.66% of portfolio value over 90 days.

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

Federal Agricultural Mortgage  vs.  Bread Financial Holdings

Federal Agricultural

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Federal Agricultural Mortgage are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical and fundamental indicators, Federal Agricultural is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Bread Financial Holdings

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bread Financial Holdings are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite fairly unfluctuating technical and fundamental indicators, Bread Financial demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Federal Agricultural and Bread Financial

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

The idea behind Federal Agricultural Mortgage and Bread Financial Holdings 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.