Correlation Between Umicore SA and Federal Signal

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

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

Diversification Opportunities for Umicore SA and Federal Signal

0.51

Correlation Coefficient

Umicore SA  Federal Signal

Very weak diversification

The 3 months correlation between Umicore and Federal is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Umicore SA ADR and Federal Signal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federal Signal and Umicore SA 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 Umicore SA ADR 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 Umicore SA i.e., Umicore SA and Federal Signal go up and down completely randomly.

Pair Corralation between Umicore SA and Federal Signal

Assuming the 90 days horizon Umicore SA ADR is expected to generate 1.17 times more return on investment than Federal Signal. However, Umicore SA is 1.17 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 -0.13 per unit of risk. If you would invest  251.00  in Umicore SA ADR on December 20, 2024 and sell it today you would lose (7.00) from holding Umicore SA ADR or give up 2.79% of portfolio value over 90 days.

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

Umicore SA ADR  vs.  Federal Signal

Umicore SA ADR

Risk-Adjusted Performance

Very Weak

Over the last 90 days Umicore SA ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong fundamental indicators, Umicore SA is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the 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 Umicore SA and Federal Signal

The main advantage of trading using opposite Umicore SA and Federal Signal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Umicore SA 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 Umicore SA ADR 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.