Correlation Between Charter Communications and Federal Agricultural

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

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

Diversification Opportunities for Charter Communications and Federal Agricultural

0.86

Correlation Coefficient

Charter Communications  Federal Agricultural

Very poor diversification

The 3 months correlation between Charter and Federal is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Charter Communications and Federal Agricultural Mortgage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federal Agricultural and Charter Communications 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 Charter Communications 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 Charter Communications i.e., Charter Communications and Federal Agricultural go up and down completely randomly.

Pair Corralation between Charter Communications and Federal Agricultural

Assuming the 90 days trading horizon Charter Communications is expected to generate 1.49 times more return on investment than Federal Agricultural. However, Charter Communications is 1.49 times more volatile than Federal Agricultural Mortgage. It trades about 0.09 of its potential returns per unit of risk. Federal Agricultural Mortgage is currently generating about 0.1 per unit of risk. If you would invest  29,555  in Charter Communications on October 5, 2024 and sell it today you would earn a total of  4,305  from holding Charter Communications or generate 14.57% return on investment over 90 days.

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

Charter Communications  vs.  Federal Agricultural Mortgage

Charter Communications

Risk-Adjusted Performance

0 of 100

Modest

Over the last 90 days Charter Communications has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively fragile basic indicators, Charter Communications unveiled solid returns over the last few months and may actually be approaching a breakup point.

Federal Agricultural

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days Federal Agricultural Mortgage has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly unsteady basic indicators, Federal Agricultural reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Charter Communications and Federal Agricultural

The main advantage of trading using opposite Charter Communications and Federal Agricultural positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Charter Communications 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 Charter Communications 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.