Correlation Between Federal Signal and China Natural

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

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

Diversification Opportunities for Federal Signal and China Natural

-0.67

Correlation Coefficient

Federal Signal  China Natural

Excellent diversification

The 3 months correlation between Federal and China is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding Federal Signal and China Natural Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Natural Resources and Federal Signal 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 Signal are associated (or correlated) with China Natural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Natural Resources has no effect on the direction of Federal Signal i.e., Federal Signal and China Natural go up and down completely randomly.

Pair Corralation between Federal Signal and China Natural

Considering the 90-day investment horizon Federal Signal is expected to generate 0.42 times more return on investment than China Natural. However, Federal Signal is 2.36 times less risky than China Natural. It trades about 0.21 of its potential returns per unit of risk. China Natural Resources is currently generating about -0.03 per unit of risk. If you would invest  8,722  in Federal Signal on May 5, 2025 and sell it today you would earn a total of  3,535  from holding Federal Signal or generate 40.53% return on investment over 90 days.

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

Federal Signal  vs.  China Natural Resources

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.

China Natural Resources

Risk-Adjusted Performance

Very Weak

Over the last 90 days China Natural Resources has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest abnormal performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pair Trading with Federal Signal and China Natural

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

The idea behind Federal Signal and China Natural Resources 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.