Correlation Between Federal National and SunHydrogen

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

Diversification Opportunities for Federal National and SunHydrogen

0.29

Correlation Coefficient

Federal National  SunHydrogen

Modest diversification

The 3 months correlation between Federal and SunHydrogen is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Federal National Mortgage and SunHydrogen in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SunHydrogen 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 SunHydrogen. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SunHydrogen has no effect on the direction of Federal National i.e., Federal National and SunHydrogen go up and down completely randomly.

Pair Corralation between Federal National and SunHydrogen

Assuming the 90 days horizon Federal National is expected to generate 1.13 times less return on investment than SunHydrogen. But when comparing it to its historical volatility, Federal National Mortgage is 1.62 times less risky than SunHydrogen. It trades about 0.26 of its potential returns per unit of risk. SunHydrogen is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  2.00  in SunHydrogen on October 22, 2024 and sell it today you would earn a total of  1.00  from holding SunHydrogen or generate 50.0% 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.  SunHydrogen

Federal National Mortgage

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Federal National Mortgage are ranked lower than 11 (%) 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.

SunHydrogen

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in SunHydrogen are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, SunHydrogen reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Federal National and SunHydrogen

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

The idea behind Federal National Mortgage and SunHydrogen 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 Transaction History module to view history of all your transactions and understand their impact on performance.