Correlation Between Federal Signal and Superior Plus

Can any of the company-specific risk be diversified away by investing in both Federal Signal and Superior Plus 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 Signal and Superior Plus into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Federal Signal and Superior Plus Corp, you can compare the effects of market volatilities on Federal Signal and Superior Plus 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 Signal with a short position of Superior Plus. Check out your portfolio center. Please also check ongoing floating volatility patterns of Federal Signal and Superior Plus.

Diversification Opportunities for Federal Signal and Superior Plus

-0.24

Correlation Coefficient

Federal Signal  Superior Plus

Very good diversification

The 3 months correlation between Federal and Superior is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding Federal Signal and Superior Plus Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Superior Plus Corp and Federal Signal 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 Signal are associated (or correlated) with Superior Plus. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Superior Plus Corp has no effect on the direction of Federal Signal i.e., Federal Signal and Superior Plus go up and down completely randomly.

Pair Corralation between Federal Signal and Superior Plus

Assuming the 90 days horizon Federal Signal is expected to generate 0.61 times more return on investment than Superior Plus. However, Federal Signal is 1.65 times less risky than Superior Plus. It trades about 0.13 of its potential returns per unit of risk. Superior Plus Corp is currently generating about -0.03 per unit of risk. If you would invest  7,739  in Federal Signal on September 15, 2024 and sell it today you would earn a total of  1,311  from holding Federal Signal or generate 16.94% return on investment over 90 days.

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

Federal Signal  vs.  Superior Plus Corp

Federal Signal

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Federal Signal are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Federal Signal reported solid returns over the last few months and may actually be approaching a breakup point.

Superior Plus Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Superior Plus Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Superior Plus is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Federal Signal and Superior Plus

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

The idea behind Federal Signal and Superior Plus Corp 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.