Correlation Between Fuel Tech and Federal Signal

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

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

Diversification Opportunities for Fuel Tech and Federal Signal

0.17

Correlation Coefficient

Fuel Tech  Federal Signal

Average diversification

The 3 months correlation between Fuel and Federal is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Fuel Tech and Federal Signal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federal Signal and Fuel Tech 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 Fuel Tech are associated (or correlated) with Federal Signal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federal Signal has no effect on the direction of Fuel Tech i.e., Fuel Tech and Federal Signal go up and down completely randomly.

Pair Corralation between Fuel Tech and Federal Signal

Given the investment horizon of 90 days Fuel Tech is expected to generate 1.27 times more return on investment than Federal Signal. However, Fuel Tech is 1.27 times more volatile than Federal Signal. It trades about 0.0 of its potential returns per unit of risk. Federal Signal is currently generating about -0.1 per unit of risk. If you would invest  105.00  in Fuel Tech on December 28, 2024 and sell it today you would lose (2.00) from holding Fuel Tech or give up 1.9% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Fuel Tech  vs.  Federal Signal

Fuel Tech

Risk-Adjusted Performance

Very Weak

Over the last 90 days Fuel Tech has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent technical and fundamental indicators, Fuel Tech is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

Federal Signal

Risk-Adjusted Performance

Very 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 inconsistent performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Fuel Tech and Federal Signal

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

The idea behind Fuel Tech and Federal Signal 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.