Correlation Between Delta CleanTech and Federal Signal

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

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

Diversification Opportunities for Delta CleanTech and Federal Signal

-0.49

Correlation Coefficient

Delta CleanTech  Federal Signal

Very good diversification

The 3 months correlation between Delta and Federal is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Delta CleanTech and Federal Signal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federal Signal and Delta CleanTech 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 Delta CleanTech 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 Delta CleanTech i.e., Delta CleanTech and Federal Signal go up and down completely randomly.

Pair Corralation between Delta CleanTech and Federal Signal

Assuming the 90 days horizon Delta CleanTech is expected to generate 9.5 times more return on investment than Federal Signal. However, Delta CleanTech is 9.5 times more volatile than Federal Signal. It trades about 0.08 of its potential returns per unit of risk. Federal Signal is currently generating about 0.21 per unit of risk. If you would invest  2.17  in Delta CleanTech on May 4, 2025 and sell it today you would lose (0.40) from holding Delta CleanTech or give up 18.43% of portfolio value over 90 days.

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

Delta CleanTech  vs.  Federal Signal

Delta CleanTech

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Delta CleanTech are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile forward indicators, Delta CleanTech reported solid returns over the last few months and may actually be approaching a breakup point.

Federal Signal

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Federal Signal are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Federal Signal unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Delta CleanTech and Federal Signal

The main advantage of trading using opposite Delta CleanTech and Federal Signal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Delta CleanTech 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 Delta CleanTech 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.