Correlation Between Federal National and BCE

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

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

Diversification Opportunities for Federal National and BCE

-0.21

Correlation Coefficient

Federal National  BCE

Very good diversification

The 3 months correlation between Federal and BCE is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Federal National Mortgage and BCE Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BCE Inc and Federal National 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 National Mortgage are associated (or correlated) with BCE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BCE Inc has no effect on the direction of Federal National i.e., Federal National and BCE go up and down completely randomly.

Pair Corralation between Federal National and BCE

Given the investment horizon of 90 days Federal National Mortgage is expected to generate 3.07 times more return on investment than BCE. However, Federal National is 3.07 times more volatile than BCE Inc. It trades about 0.07 of its potential returns per unit of risk. BCE Inc is currently generating about -0.04 per unit of risk. If you would invest  546.00  in Federal National Mortgage on January 25, 2025 and sell it today you would earn a total of  100.00  from holding Federal National Mortgage or generate 18.32% return on investment over 90 days.

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

Federal National Mortgage  vs.  BCE Inc

Federal National Mortgage

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Federal National Mortgage are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat fragile primary indicators, Federal National sustained solid returns over the last few months and may actually be approaching a breakup point.

BCE Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days BCE Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, BCE is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Federal National and BCE

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

The idea behind Federal National Mortgage and BCE Inc 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.

Check out your portfolio center.

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.