Correlation Between OCN Old and Federal National

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

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

Diversification Opportunities for OCN Old and Federal National

0.45

Correlation Coefficient

OCN Old  Federal National

Very weak diversification

The 3 months correlation between OCN and Federal is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding OCN Old and Federal National Mortgage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federal National Mortgage and OCN Old 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 OCN Old are associated (or correlated) with Federal National. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federal National Mortgage has no effect on the direction of OCN Old i.e., OCN Old and Federal National go up and down completely randomly.

Pair Corralation between OCN Old and Federal National

Considering the 90-day investment horizon OCN Old is expected to generate 14.14 times less return on investment than Federal National. But when comparing it to its historical volatility, OCN Old is 1.49 times less risky than Federal National. It trades about 0.01 of its potential returns per unit of risk. Federal National Mortgage is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  287.00  in Federal National Mortgage on October 24, 2024 and sell it today you would earn a total of  1,713  from holding Federal National Mortgage or generate 596.86% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	24.09%
Values	Daily Returns

OCN Old  vs.  Federal National Mortgage

OCN Old

Risk-Adjusted Performance

0 of 100

Very Weak

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

Federal National Mortgage

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Federal National Mortgage are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Federal National disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with OCN Old and Federal National

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

The idea behind OCN Old and Federal National Mortgage 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.