Correlation Between Federal Signal and Umicore SA

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

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

Diversification Opportunities for Federal Signal and Umicore SA

-0.53

Correlation Coefficient

Federal Signal  Umicore SA

Excellent diversification

The 3 months correlation between Federal and Umicore is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Federal Signal and Umicore SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Umicore SA 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 Umicore SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Umicore SA has no effect on the direction of Federal Signal i.e., Federal Signal and Umicore SA go up and down completely randomly.

Pair Corralation between Federal Signal and Umicore SA

Considering the 90-day investment horizon Federal Signal is expected to generate 0.39 times more return on investment than Umicore SA. However, Federal Signal is 2.56 times less risky than Umicore SA. It trades about 0.08 of its potential returns per unit of risk. Umicore SA is currently generating about -0.04 per unit of risk. If you would invest  5,162  in Federal Signal on October 21, 2024 and sell it today you would earn a total of  4,558  from holding Federal Signal or generate 88.3% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	88.91%
Values	Daily Returns

Federal Signal  vs.  Umicore SA

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 February 2025.

Umicore SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Umicore SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest inconsistent performance, the Stock's fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Federal Signal and Umicore SA

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

The idea behind Federal Signal and Umicore SA 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.