Correlation Between Federal Signal and Aker Carbon

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

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

Diversification Opportunities for Federal Signal and Aker Carbon

0.54

Correlation Coefficient

Federal Signal  Aker Carbon

Very weak diversification

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

Pair Corralation between Federal Signal and Aker Carbon

Considering the 90-day investment horizon Federal Signal is expected to under-perform the Aker Carbon. But the stock apears to be less risky and, when comparing its historical volatility, Federal Signal is 3.68 times less risky than Aker Carbon. The stock trades about -0.13 of its potential returns per unit of risk. The Aker Carbon Capture is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  56.00  in Aker Carbon Capture on December 28, 2024 and sell it today you would lose (19.00) from holding Aker Carbon Capture or give up 33.93% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	96.83%
Values	Daily Returns

Federal Signal  vs.  Aker Carbon Capture

Federal Signal

Risk-Adjusted Performance

Very Weak

Over the last 90 days Federal Signal has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Aker Carbon Capture

Risk-Adjusted Performance

Very Weak

Over the last 90 days Aker Carbon Capture has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Federal Signal and Aker Carbon

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

The idea behind Federal Signal and Aker Carbon Capture 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.