Correlation Between Federal Signal and PureCycle Technologies

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

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

Diversification Opportunities for Federal Signal and PureCycle Technologies

-0.01

Correlation Coefficient

Federal Signal  PureCycle Technologies

Good diversification

The 3 months correlation between Federal and PureCycle is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding Federal Signal and PureCycle Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PureCycle Technologies 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 PureCycle Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PureCycle Technologies has no effect on the direction of Federal Signal i.e., Federal Signal and PureCycle Technologies go up and down completely randomly.

Pair Corralation between Federal Signal and PureCycle Technologies

Considering the 90-day investment horizon Federal Signal is expected to generate 18.3 times less return on investment than PureCycle Technologies. But when comparing it to its historical volatility, Federal Signal is 27.0 times less risky than PureCycle Technologies. It trades about 0.07 of its potential returns per unit of risk. PureCycle Technologies is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  288.00  in PureCycle Technologies on November 20, 2024 and sell it today you would earn a total of  16.00  from holding PureCycle Technologies or generate 5.56% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	97.37%
Values	Daily Returns

Federal Signal  vs.  PureCycle Technologies

Federal Signal

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Federal Signal are ranked lower than 5 (%) 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 March 2025.

PureCycle Technologies

Risk-Adjusted Performance

Very Weak

Over the last 90 days PureCycle Technologies has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in March 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with Federal Signal and PureCycle Technologies

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

The idea behind Federal Signal and PureCycle Technologies 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.