Correlation Between Federal Signal and LiqTech International

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

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

Diversification Opportunities for Federal Signal and LiqTech International

0.78

Correlation Coefficient

Federal Signal  LiqTech International

Poor diversification

The 3 months correlation between Federal and LiqTech is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Federal Signal and LiqTech International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LiqTech International 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 LiqTech International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LiqTech International has no effect on the direction of Federal Signal i.e., Federal Signal and LiqTech International go up and down completely randomly.

Pair Corralation between Federal Signal and LiqTech International

Considering the 90-day investment horizon Federal Signal is expected to under-perform the LiqTech International. But the stock apears to be less risky and, when comparing its historical volatility, Federal Signal is 1.66 times less risky than LiqTech International. The stock trades about -0.1 of its potential returns per unit of risk. The LiqTech International is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  188.00  in LiqTech International on December 29, 2024 and sell it today you would lose (28.00) from holding LiqTech International or give up 14.89% of portfolio value over 90 days.

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

Federal Signal  vs.  LiqTech International

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.

LiqTech International

Risk-Adjusted Performance

Very Weak

Over the last 90 days LiqTech International has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Federal Signal and LiqTech International

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

The idea behind Federal Signal and LiqTech International 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.