Correlation Between Federal National and Obayashi

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

Diversification Opportunities for Federal National and Obayashi

0.79

Correlation Coefficient

Federal National  Obayashi

Poor diversification

The 3 months correlation between Federal and Obayashi is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Federal National Mortgage and Obayashi in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Obayashi 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 Obayashi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Obayashi has no effect on the direction of Federal National i.e., Federal National and Obayashi go up and down completely randomly.

Pair Corralation between Federal National and Obayashi

Assuming the 90 days horizon Federal National Mortgage is expected to generate 2.61 times more return on investment than Obayashi. However, Federal National is 2.61 times more volatile than Obayashi. It trades about 0.29 of its potential returns per unit of risk. Obayashi is currently generating about -0.02 per unit of risk. If you would invest  2,530,000  in Federal National Mortgage on September 22, 2024 and sell it today you would earn a total of  870,000  from holding Federal National Mortgage or generate 34.39% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.45%
Values	Daily Returns

Federal National Mortgage  vs.  Obayashi

Federal National Mortgage

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Federal National Mortgage are ranked lower than 14 (%) 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.

Obayashi

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Obayashi are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak fundamental indicators, Obayashi reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Federal National and Obayashi

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

The idea behind Federal National Mortgage and Obayashi 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.