Correlation Between Federal National and Wisconsin Electric

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

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

Diversification Opportunities for Federal National and Wisconsin Electric

-0.53

Correlation Coefficient

Federal National  Wisconsin Electric

Excellent diversification

The 3 months correlation between Federal and Wisconsin is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Federal National Mortgage and Wisconsin Electric Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wisconsin Electric Power and Federal National 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 Federal National Mortgage are associated (or correlated) with Wisconsin Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wisconsin Electric Power has no effect on the direction of Federal National i.e., Federal National and Wisconsin Electric go up and down completely randomly.

Pair Corralation between Federal National and Wisconsin Electric

Given the investment horizon of 90 days Federal National Mortgage is expected to generate 8.07 times more return on investment than Wisconsin Electric. However, Federal National is 8.07 times more volatile than Wisconsin Electric Power. It trades about 0.25 of its potential returns per unit of risk. Wisconsin Electric Power is currently generating about -0.03 per unit of risk. If you would invest  147.00  in Federal National Mortgage on October 27, 2024 and sell it today you would earn a total of  427.00  from holding Federal National Mortgage or generate 290.48% return on investment over 90 days.

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

Federal National Mortgage  vs.  Wisconsin Electric Power

Federal National Mortgage

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Federal National Mortgage are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak primary indicators, Federal National sustained solid returns over the last few months and may actually be approaching a breakup point.

Wisconsin Electric Power

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Wisconsin Electric Power has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Wisconsin Electric is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Federal National and Wisconsin Electric

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

The idea behind Federal National Mortgage and Wisconsin Electric Power 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.