Correlation Between Carnegie Clean and Federal Agricultural

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

By analyzing existing cross correlation between Carnegie Clean Energy and Federal Agricultural Mortgage, you can compare the effects of market volatilities on Carnegie Clean and Federal Agricultural 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 Carnegie Clean with a short position of Federal Agricultural. Check out your portfolio center. Please also check ongoing floating volatility patterns of Carnegie Clean and Federal Agricultural.

Diversification Opportunities for Carnegie Clean and Federal Agricultural

0.26

Correlation Coefficient

Carnegie Clean  Federal Agricultural

Modest diversification

The 3 months correlation between Carnegie and Federal is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Carnegie Clean Energy and Federal Agricultural Mortgage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federal Agricultural and Carnegie Clean 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 Carnegie Clean Energy are associated (or correlated) with Federal Agricultural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federal Agricultural has no effect on the direction of Carnegie Clean i.e., Carnegie Clean and Federal Agricultural go up and down completely randomly.

Pair Corralation between Carnegie Clean and Federal Agricultural

Assuming the 90 days trading horizon Carnegie Clean Energy is expected to generate 3.13 times more return on investment than Federal Agricultural. However, Carnegie Clean is 3.13 times more volatile than Federal Agricultural Mortgage. It trades about -0.01 of its potential returns per unit of risk. Federal Agricultural Mortgage is currently generating about -0.07 per unit of risk. If you would invest  2.18  in Carnegie Clean Energy on December 22, 2024 and sell it today you would lose (0.26) from holding Carnegie Clean Energy or give up 11.93% of portfolio value over 90 days.

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

Carnegie Clean Energy  vs.  Federal Agricultural Mortgage

Carnegie Clean Energy

Risk-Adjusted Performance

Weak

Over the last 90 days Carnegie Clean Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable primary indicators, Carnegie Clean is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

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. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Carnegie Clean and Federal Agricultural

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

The idea behind Carnegie Clean Energy and Federal Agricultural Mortgage 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.