Correlation Between Federal Agricultural and Regional Management

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

Diversification Opportunities for Federal Agricultural and Regional Management

0.3

Correlation Coefficient

Federal Agricultural  Regional Management

Weak diversification

The 3 months correlation between Federal and Regional is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Federal Agricultural Mortgage and Regional Management Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Regional Management Corp 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 Regional Management. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Regional Management Corp has no effect on the direction of Federal Agricultural i.e., Federal Agricultural and Regional Management go up and down completely randomly.

Pair Corralation between Federal Agricultural and Regional Management

Considering the 90-day investment horizon Federal Agricultural Mortgage is expected to generate 0.78 times more return on investment than Regional Management. However, Federal Agricultural Mortgage is 1.29 times less risky than Regional Management. It trades about -0.02 of its potential returns per unit of risk. Regional Management Corp is currently generating about -0.06 per unit of risk. If you would invest  19,472  in Federal Agricultural Mortgage on December 28, 2024 and sell it today you would lose (614.00) from holding Federal Agricultural Mortgage or give up 3.15% of portfolio value over 90 days.

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

Federal Agricultural Mortgage  vs.  Regional Management Corp

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. 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.

Regional Management Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Regional Management Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's primary indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Federal Agricultural and Regional Management

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

The idea behind Federal Agricultural Mortgage and Regional Management Corp 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.