Correlation Between Federal Signal and LifeQuest World

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

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

Diversification Opportunities for Federal Signal and LifeQuest World

-0.26

Correlation Coefficient

Federal Signal  LifeQuest World

Very good diversification

The 3 months correlation between Federal and LifeQuest is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Federal Signal and LifeQuest World in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LifeQuest World 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 LifeQuest World. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LifeQuest World has no effect on the direction of Federal Signal i.e., Federal Signal and LifeQuest World go up and down completely randomly.

Pair Corralation between Federal Signal and LifeQuest World

Considering the 90-day investment horizon Federal Signal is expected to generate 20.42 times less return on investment than LifeQuest World. But when comparing it to its historical volatility, Federal Signal is 15.1 times less risky than LifeQuest World. It trades about 0.09 of its potential returns per unit of risk. LifeQuest World is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  1.10  in LifeQuest World on August 31, 2024 and sell it today you would lose (0.19) from holding LifeQuest World or give up 17.27% 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.  LifeQuest World

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.

LifeQuest World

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in LifeQuest World are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, LifeQuest World exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Federal Signal and LifeQuest World

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

The idea behind Federal Signal and LifeQuest World 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.