Correlation Between CECO Environmental and Federal Signal

Can any of the company-specific risk be diversified away by investing in both CECO 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 CECO 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 CECO Environmental Corp and Federal Signal, you can compare the effects of market volatilities on CECO 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 CECO Environmental with a short position of Federal Signal. Check out your portfolio center. Please also check ongoing floating volatility patterns of CECO Environmental and Federal Signal.

Diversification Opportunities for CECO Environmental and Federal Signal

0.66

Correlation Coefficient

CECO Environmental  Federal Signal

Poor diversification

The 3 months correlation between CECO and Federal is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding CECO Environmental Corp and Federal Signal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federal Signal and CECO 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 CECO Environmental Corp 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 CECO Environmental i.e., CECO Environmental and Federal Signal go up and down completely randomly.

Pair Corralation between CECO Environmental and Federal Signal

Given the investment horizon of 90 days CECO Environmental Corp is expected to under-perform the Federal Signal. In addition to that, CECO Environmental is 1.2 times more volatile than Federal Signal. It trades about -0.12 of its total potential returns per unit of risk. Federal Signal is currently generating about -0.1 per unit of volatility. If you would invest  9,202  in Federal Signal on December 28, 2024 and sell it today you would lose (1,314) from holding Federal Signal or give up 14.28% of portfolio value over 90 days.

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

CECO Environmental Corp  vs.  Federal Signal

CECO Environmental Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days CECO Environmental Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's fundamental indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

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 inconsistent performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with CECO Environmental and Federal Signal

The main advantage of trading using opposite CECO Environmental and Federal Signal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CECO 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 CECO Environmental Corp 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.