Correlation Between Federal Agricultural and World Acceptance

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

Diversification Opportunities for Federal Agricultural and World Acceptance

0.51

Correlation Coefficient

Federal Agricultural  World Acceptance

Very weak diversification

The 3 months correlation between Federal and World is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Federal Agricultural Mortgage and World Acceptance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on World Acceptance 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 World Acceptance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of World Acceptance has no effect on the direction of Federal Agricultural i.e., Federal Agricultural and World Acceptance go up and down completely randomly.

Pair Corralation between Federal Agricultural and World Acceptance

Considering the 90-day investment horizon Federal Agricultural is expected to generate 36.63 times less return on investment than World Acceptance. But when comparing it to its historical volatility, Federal Agricultural Mortgage is 1.89 times less risky than World Acceptance. It trades about 0.01 of its potential returns per unit of risk. World Acceptance is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  11,188  in World Acceptance on December 28, 2024 and sell it today you would earn a total of  2,012  from holding World Acceptance or generate 17.98% return on investment over 90 days.

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

Federal Agricultural Mortgage  vs.  World Acceptance

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.

World Acceptance

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in World Acceptance are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain essential indicators, World Acceptance exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Federal Agricultural and World Acceptance

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

The idea behind Federal Agricultural Mortgage and World Acceptance 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.