Correlation Between Aker Carbon and Federal Signal

Can any of the company-specific risk be diversified away by investing in both Aker Carbon and Federal Signal 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 Aker Carbon and Federal Signal into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Aker Carbon Capture and Federal Signal, you can compare the effects of market volatilities on Aker Carbon and Federal Signal 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 Aker Carbon with a short position of Federal Signal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aker Carbon and Federal Signal.

Diversification Opportunities for Aker Carbon and Federal Signal

-0.18

Correlation Coefficient

Aker Carbon  Federal Signal

Good diversification

The 3 months correlation between Aker and Federal is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Aker Carbon Capture and Federal Signal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federal Signal and Aker Carbon 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 Aker Carbon Capture are associated (or correlated) with Federal Signal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federal Signal has no effect on the direction of Aker Carbon i.e., Aker Carbon and Federal Signal go up and down completely randomly.

Pair Corralation between Aker Carbon and Federal Signal

Assuming the 90 days horizon Aker Carbon Capture is expected to generate 2.08 times more return on investment than Federal Signal. However, Aker Carbon is 2.08 times more volatile than Federal Signal. It trades about 0.11 of its potential returns per unit of risk. Federal Signal is currently generating about -0.07 per unit of risk. If you would invest  55.00  in Aker Carbon Capture on November 28, 2024 and sell it today you would earn a total of  11.00  from holding Aker Carbon Capture or generate 20.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	96.67%
Values	Daily Returns

Aker Carbon Capture  vs.  Federal Signal

Aker Carbon Capture

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Aker Carbon Capture are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental indicators, Aker Carbon reported solid returns over the last few months and may actually be approaching a breakup point.

Federal Signal

Risk-Adjusted Performance

Very Weak

Over the last 90 days Federal Signal has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest inconsistent performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Aker Carbon and Federal Signal

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

The idea behind Aker Carbon Capture and Federal Signal 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.