Correlation Between Federal Home and Superior Drilling

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

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

Diversification Opportunities for Federal Home and Superior Drilling

0.22

Correlation Coefficient

Federal Home  Superior Drilling

Modest diversification

The 3 months correlation between Federal and Superior is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Federal Home Loan and Superior Drilling Products in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Superior Drilling and Federal Home 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 Federal Home Loan are associated (or correlated) with Superior Drilling. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Superior Drilling has no effect on the direction of Federal Home i.e., Federal Home and Superior Drilling go up and down completely randomly.

Pair Corralation between Federal Home and Superior Drilling

Assuming the 90 days horizon Federal Home Loan is expected to under-perform the Superior Drilling. But the otc stock apears to be less risky and, when comparing its historical volatility, Federal Home Loan is 1.84 times less risky than Superior Drilling. The otc stock trades about -0.18 of its potential returns per unit of risk. The Superior Drilling Products is currently generating about 0.48 of returns per unit of risk over similar time horizon. If you would invest  92.00  in Superior Drilling Products on January 29, 2024 and sell it today you would earn a total of  34.00  from holding Superior Drilling Products or generate 36.96% return on investment over 90 days.

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

Federal Home Loan  vs.  Superior Drilling Products

Federal Home Loan

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Federal Home Loan has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable technical and fundamental indicators, Federal Home is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Superior Drilling

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Superior Drilling Products are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite fairly inconsistent basic indicators, Superior Drilling demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Federal Home and Superior Drilling

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

The idea behind Federal Home Loan and Superior Drilling Products 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..