Correlation Between Federal National and Tarku Resources

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

Diversification Opportunities for Federal National and Tarku Resources

-0.52

Correlation Coefficient

Federal National  Tarku Resources

Excellent diversification

The 3 months correlation between Federal and Tarku is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Federal National Mortgage and Tarku Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tarku Resources 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 Tarku Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tarku Resources has no effect on the direction of Federal National i.e., Federal National and Tarku Resources go up and down completely randomly.

Pair Corralation between Federal National and Tarku Resources

Assuming the 90 days horizon Federal National Mortgage is expected to generate 0.8 times more return on investment than Tarku Resources. However, Federal National Mortgage is 1.24 times less risky than Tarku Resources. It trades about 0.0 of its potential returns per unit of risk. Tarku Resources is currently generating about -0.06 per unit of risk. If you would invest  3,400,000  in Federal National Mortgage on December 26, 2024 and sell it today you would lose (190,000) from holding Federal National Mortgage or give up 5.59% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	96.77%
Values	Daily Returns

Federal National Mortgage  vs.  Tarku Resources

Federal National Mortgage

Risk-Adjusted Performance

Very Weak

Over the last 90 days Federal National Mortgage has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, Federal National is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Tarku Resources

Risk-Adjusted Performance

Very Weak

Over the last 90 days Tarku Resources has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Federal National and Tarku Resources

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

The idea behind Federal National Mortgage and Tarku Resources 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.