Correlation Between Federal National and Eton Pharmaceuticals

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

Diversification Opportunities for Federal National and Eton Pharmaceuticals

0.22

Correlation Coefficient

Federal National  Eton Pharmaceuticals

Modest diversification

The 3 months correlation between Federal and Eton is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Federal National Mortgage and Eton Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eton Pharmaceuticals 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 Eton Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eton Pharmaceuticals has no effect on the direction of Federal National i.e., Federal National and Eton Pharmaceuticals go up and down completely randomly.

Pair Corralation between Federal National and Eton Pharmaceuticals

Assuming the 90 days horizon Federal National Mortgage is expected to generate 0.7 times more return on investment than Eton Pharmaceuticals. However, Federal National Mortgage is 1.42 times less risky than Eton Pharmaceuticals. It trades about 0.08 of its potential returns per unit of risk. Eton Pharmaceuticals is currently generating about 0.04 per unit of risk. If you would invest  3,400,000  in Federal National Mortgage on December 29, 2024 and sell it today you would earn a total of  500,000  from holding Federal National Mortgage or generate 14.71% return on investment over 90 days.

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

Federal National Mortgage  vs.  Eton Pharmaceuticals

Federal National Mortgage

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Federal National Mortgage are ranked lower than 6 (%) 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.

Eton Pharmaceuticals

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Eton Pharmaceuticals are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Eton Pharmaceuticals may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Federal National and Eton Pharmaceuticals

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

The idea behind Federal National Mortgage and Eton Pharmaceuticals 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.