Correlation Between Bion Environmental and Federal Signal

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

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

Diversification Opportunities for Bion Environmental and Federal Signal

-0.46

Correlation Coefficient

Bion Environmental  Federal Signal

Very good diversification

The 3 months correlation between Bion and Federal is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Bion Environmental Technologie and Federal Signal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federal Signal and Bion Environmental 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 Bion Environmental Technologies 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 Bion Environmental i.e., Bion Environmental and Federal Signal go up and down completely randomly.

Pair Corralation between Bion Environmental and Federal Signal

Given the investment horizon of 90 days Bion Environmental Technologies is expected to under-perform the Federal Signal. In addition to that, Bion Environmental is 5.63 times more volatile than Federal Signal. It trades about -0.01 of its total potential returns per unit of risk. Federal Signal is currently generating about 0.01 per unit of volatility. If you would invest  9,178  in Federal Signal on September 28, 2024 and sell it today you would earn a total of  88.00  from holding Federal Signal or generate 0.96% return on investment over 90 days.

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

Bion Environmental Technologie  vs.  Federal Signal

Bion Environmental

Risk-Adjusted Performance

0 of 100

Insignificant

Over the last 90 days Bion Environmental Technologies has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, Bion Environmental is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Federal Signal

Risk-Adjusted Performance

0 of 100

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 comparatively stable basic indicators, Federal Signal is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Bion Environmental and Federal Signal

The main advantage of trading using opposite Bion Environmental and Federal Signal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bion Environmental 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 Bion Environmental Technologies 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.