Correlation Between United Internet and Federal Signal

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

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

Diversification Opportunities for United Internet and Federal Signal

-0.81

Correlation Coefficient

United Internet  Federal Signal

Pay attention - limited upside

The 3 months correlation between United and Federal is -0.81. Overlapping area represents the amount of risk that can be diversified away by holding United Internet AG and Federal Signal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federal Signal and United Internet 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 United Internet AG 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 United Internet i.e., United Internet and Federal Signal go up and down completely randomly.

Pair Corralation between United Internet and Federal Signal

Assuming the 90 days trading horizon United Internet AG is expected to under-perform the Federal Signal. In addition to that, United Internet is 1.06 times more volatile than Federal Signal. It trades about -0.04 of its total potential returns per unit of risk. Federal Signal is currently generating about 0.06 per unit of volatility. If you would invest  6,908  in Federal Signal on September 15, 2024 and sell it today you would earn a total of  2,142  from holding Federal Signal or generate 31.01% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	99.6%
Values	Daily Returns

United Internet AG  vs.  Federal Signal

United Internet AG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days United Internet AG has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's fundamental indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company 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 United Internet and Federal Signal

The main advantage of trading using opposite United Internet and Federal Signal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if United Internet 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 United Internet AG 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.