Correlation Between Federal Agricultural and ScanSource

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

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

Diversification Opportunities for Federal Agricultural and ScanSource

0.51

Correlation Coefficient

Federal Agricultural  ScanSource

Very weak diversification

The 3 months correlation between Federal and ScanSource is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Federal Agricultural Mortgage and ScanSource in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ScanSource and Federal Agricultural 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 Agricultural Mortgage are associated (or correlated) with ScanSource. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ScanSource has no effect on the direction of Federal Agricultural i.e., Federal Agricultural and ScanSource go up and down completely randomly.

Pair Corralation between Federal Agricultural and ScanSource

Assuming the 90 days trading horizon Federal Agricultural Mortgage is expected to under-perform the ScanSource. In addition to that, Federal Agricultural is 1.16 times more volatile than ScanSource. It trades about -0.1 of its total potential returns per unit of risk. ScanSource is currently generating about -0.06 per unit of volatility. If you would invest  3,600  in ScanSource on May 10, 2025 and sell it today you would lose (280.00) from holding ScanSource or give up 7.78% of portfolio value over 90 days.

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

Federal Agricultural Mortgage  vs.  ScanSource

Federal Agricultural

Risk-Adjusted Performance

Weakest

Over the last 90 days Federal Agricultural Mortgage has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

ScanSource

Risk-Adjusted Performance

Weakest

Over the last 90 days ScanSource has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Federal Agricultural and ScanSource

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

The idea behind Federal Agricultural Mortgage and ScanSource 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.