Correlation Between Federal Signal and Evoqua Water

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

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

Diversification Opportunities for Federal Signal and Evoqua Water

-0.15

Correlation Coefficient

Federal Signal  Evoqua Water

Good diversification

The 3 months correlation between Federal and Evoqua is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Federal Signal and Evoqua Water Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Evoqua Water Technologies 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 Evoqua Water. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Evoqua Water Technologies has no effect on the direction of Federal Signal i.e., Federal Signal and Evoqua Water go up and down completely randomly.

Pair Corralation between Federal Signal and Evoqua Water

Considering the 90-day investment horizon Federal Signal is expected to generate 0.82 times more return on investment than Evoqua Water. However, Federal Signal is 1.22 times less risky than Evoqua Water. It trades about 0.09 of its potential returns per unit of risk. Evoqua Water Technologies is currently generating about 0.07 per unit of risk. If you would invest  4,609  in Federal Signal on August 31, 2024 and sell it today you would earn a total of  5,179  from holding Federal Signal or generate 112.37% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	22.83%
Values	Daily Returns

Federal Signal  vs.  Evoqua Water Technologies

Federal Signal

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Federal Signal are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent basic indicators, Federal Signal may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Evoqua Water Technologies

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Evoqua Water Technologies has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Evoqua Water is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Federal Signal and Evoqua Water

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

The idea behind Federal Signal and Evoqua Water Technologies 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.