Correlation Between Federal Signal and Renovare Environmental

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

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

Diversification Opportunities for Federal Signal and Renovare Environmental

-0.36

Correlation Coefficient

Federal Signal  Renovare Environmental

Very good diversification

The 3 months correlation between Federal and Renovare is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Federal Signal and Renovare Environmental in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Renovare Environmental 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 Renovare Environmental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Renovare Environmental has no effect on the direction of Federal Signal i.e., Federal Signal and Renovare Environmental go up and down completely randomly.

Pair Corralation between Federal Signal and Renovare Environmental

If you would invest  8,656  in Federal Signal on September 14, 2024 and sell it today you would earn a total of  1,077  from holding Federal Signal or generate 12.44% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	1.59%
Values	Daily Returns

Federal Signal  vs.  Renovare Environmental

Federal Signal

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Federal Signal are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent basic indicators, Federal Signal unveiled solid returns over the last few months and may actually be approaching a breakup point.

Renovare Environmental

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Renovare Environmental has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Renovare Environmental is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Federal Signal and Renovare Environmental

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

The idea behind Federal Signal and Renovare Environmental 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 Anywhere module to track or share privately all of your investments from the convenience of any device.