Correlation Between Federal Signal and One World

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

Diversification Opportunities for Federal Signal and One World

0.23

Correlation Coefficient

Federal Signal  One World

Modest diversification

The 3 months correlation between Federal and One is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Federal Signal and One World Universe in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on One World Universe 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 One World. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of One World Universe has no effect on the direction of Federal Signal i.e., Federal Signal and One World go up and down completely randomly.

Pair Corralation between Federal Signal and One World

Considering the 90-day investment horizon Federal Signal is expected to under-perform the One World. But the stock apears to be less risky and, when comparing its historical volatility, Federal Signal is 8.23 times less risky than One World. The stock trades about -0.18 of its potential returns per unit of risk. The One World Universe is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  0.73  in One World Universe on September 27, 2024 and sell it today you would lose (0.04) from holding One World Universe or give up 5.48% 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.  One World Universe

Federal Signal

Risk-Adjusted Performance

0 of 100

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 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.

One World Universe

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in One World Universe are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, One World showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Federal Signal and One World

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

The idea behind Federal Signal and One World Universe 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.