Correlation Between Federal National and Crimson Wine

Can any of the company-specific risk be diversified away by investing in both Federal National and Crimson Wine 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 Crimson Wine 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 Crimson Wine, you can compare the effects of market volatilities on Federal National and Crimson Wine 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 Crimson Wine. Check out your portfolio center. Please also check ongoing floating volatility patterns of Federal National and Crimson Wine.

Diversification Opportunities for Federal National and Crimson Wine

0.17

Correlation Coefficient

Federal National  Crimson Wine

Average diversification

The 3 months correlation between Federal and Crimson is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Federal National Mortgage and Crimson Wine in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Crimson Wine 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 Crimson Wine. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Crimson Wine has no effect on the direction of Federal National i.e., Federal National and Crimson Wine go up and down completely randomly.

Pair Corralation between Federal National and Crimson Wine

Assuming the 90 days horizon Federal National Mortgage is expected to generate 5.62 times more return on investment than Crimson Wine. However, Federal National is 5.62 times more volatile than Crimson Wine. It trades about 0.17 of its potential returns per unit of risk. Crimson Wine is currently generating about 0.06 per unit of risk. If you would invest  1,075,000  in Federal National Mortgage on September 13, 2024 and sell it today you would earn a total of  2,145,000  from holding Federal National Mortgage or generate 199.53% return on investment over 90 days.

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

Federal National Mortgage  vs.  Crimson Wine

Federal National Mortgage

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Federal National Mortgage are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting technical and fundamental indicators, Federal National displayed solid returns over the last few months and may actually be approaching a breakup point.

Crimson Wine

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Crimson Wine are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite fragile technical and fundamental indicators, Crimson Wine may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Federal National and Crimson Wine

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

The idea behind Federal National Mortgage and Crimson Wine 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.

Check out your portfolio center.

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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.