Correlation Between Federal Signal and Kurita Water

Can any of the company-specific risk be diversified away by investing in both Federal Signal and Kurita 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 Kurita 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 Kurita Water Industries, you can compare the effects of market volatilities on Federal Signal and Kurita 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 Kurita Water. Check out your portfolio center. Please also check ongoing floating volatility patterns of Federal Signal and Kurita Water.

Diversification Opportunities for Federal Signal and Kurita Water

-0.05

Correlation Coefficient

Federal Signal  Kurita Water

Good diversification

The 3 months correlation between Federal and Kurita is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Federal Signal and Kurita Water Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kurita Water Industries 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 Kurita Water. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kurita Water Industries has no effect on the direction of Federal Signal i.e., Federal Signal and Kurita Water go up and down completely randomly.

Pair Corralation between Federal Signal and Kurita Water

Considering the 90-day investment horizon Federal Signal is expected to generate 0.43 times more return on investment than Kurita Water. However, Federal Signal is 2.34 times less risky than Kurita Water. It trades about -0.05 of its potential returns per unit of risk. Kurita Water Industries is currently generating about -0.03 per unit of risk. If you would invest  9,759  in Federal Signal on October 6, 2024 and sell it today you would lose (172.00) from holding Federal Signal or give up 1.76% of portfolio value over 90 days.

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

Federal Signal  vs.  Kurita Water Industries

Federal Signal

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Federal Signal are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Federal Signal is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Kurita Water Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Kurita Water Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's forward indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Federal Signal and Kurita Water

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

The idea behind Federal Signal and Kurita Water Industries 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.

Check out your portfolio center.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.