Correlation Between Federal Signal and Hitachi Zosen

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

By analyzing existing cross correlation between Federal Signal and Hitachi Zosen, you can compare the effects of market volatilities on Federal Signal and Hitachi Zosen 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 Hitachi Zosen. Check out your portfolio center. Please also check ongoing floating volatility patterns of Federal Signal and Hitachi Zosen.

Diversification Opportunities for Federal Signal and Hitachi Zosen

-0.54

Correlation Coefficient

Federal Signal  Hitachi Zosen

Excellent diversification

The 3 months correlation between Federal and Hitachi is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Federal Signal and Hitachi Zosen in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hitachi Zosen 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 Hitachi Zosen. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hitachi Zosen has no effect on the direction of Federal Signal i.e., Federal Signal and Hitachi Zosen go up and down completely randomly.

Pair Corralation between Federal Signal and Hitachi Zosen

Assuming the 90 days horizon Federal Signal is expected to generate 0.85 times more return on investment than Hitachi Zosen. However, Federal Signal is 1.17 times less risky than Hitachi Zosen. It trades about 0.08 of its potential returns per unit of risk. Hitachi Zosen is currently generating about 0.03 per unit of risk. If you would invest  6,213  in Federal Signal on September 14, 2024 and sell it today you would earn a total of  2,937  from holding Federal Signal or generate 47.27% return on investment over 90 days.

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

Federal Signal  vs.  Hitachi Zosen

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.

Hitachi Zosen

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Federal Signal and Hitachi Zosen

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

The idea behind Federal Signal and Hitachi Zosen 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.