Correlation Between Federal Signal and Greenlane Renewables

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

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

Diversification Opportunities for Federal Signal and Greenlane Renewables

0.31

Correlation Coefficient

Federal Signal  Greenlane Renewables

Weak diversification

The 3 months correlation between Federal and Greenlane is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Federal Signal and Greenlane Renewables in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Greenlane Renewables 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 Greenlane Renewables. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Greenlane Renewables has no effect on the direction of Federal Signal i.e., Federal Signal and Greenlane Renewables go up and down completely randomly.

Pair Corralation between Federal Signal and Greenlane Renewables

Considering the 90-day investment horizon Federal Signal is expected to under-perform the Greenlane Renewables. But the stock apears to be less risky and, when comparing its historical volatility, Federal Signal is 2.32 times less risky than Greenlane Renewables. The stock trades about -0.1 of its potential returns per unit of risk. The Greenlane Renewables is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  6.70  in Greenlane Renewables on December 29, 2024 and sell it today you would lose (0.28) from holding Greenlane Renewables or give up 4.18% of portfolio value over 90 days.

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

Federal Signal  vs.  Greenlane Renewables

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.

Greenlane Renewables

Risk-Adjusted Performance

Very Weak

Over the last 90 days Greenlane Renewables has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Greenlane Renewables 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 Greenlane Renewables

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

The idea behind Federal Signal and Greenlane Renewables 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.