Correlation Between Hitachi Zosen and Federal Signal

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

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

Diversification Opportunities for Hitachi Zosen and Federal Signal

-0.57

Correlation Coefficient

Hitachi Zosen  Federal Signal

Excellent diversification

The 3 months correlation between Hitachi and Federal is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding Hitachi Zosen and Federal Signal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federal Signal and Hitachi Zosen 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 Hitachi Zosen 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 Hitachi Zosen i.e., Hitachi Zosen and Federal Signal go up and down completely randomly.

Pair Corralation between Hitachi Zosen and Federal Signal

Assuming the 90 days horizon Hitachi Zosen is expected to under-perform the Federal Signal. In addition to that, Hitachi Zosen is 1.03 times more volatile than Federal Signal. It trades about -0.03 of its total potential returns per unit of risk. Federal Signal is currently generating about 0.13 per unit of volatility. If you would invest  7,739  in Federal Signal on September 15, 2024 and sell it today you would earn a total of  1,311  from holding Federal Signal or generate 16.94% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Hitachi Zosen  vs.  Federal Signal

Hitachi Zosen

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hitachi Zosen has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Hitachi Zosen is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Federal Signal

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Federal Signal are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Federal Signal reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hitachi Zosen and Federal Signal

The main advantage of trading using opposite Hitachi Zosen and Federal Signal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hitachi Zosen 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 Hitachi Zosen 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.