Correlation Between Federal Agricultural and Trane Technologies

Can any of the company-specific risk be diversified away by investing in both Federal Agricultural and Trane Technologies 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 Trane Technologies 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 Trane Technologies plc, you can compare the effects of market volatilities on Federal Agricultural and Trane Technologies 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 Trane Technologies. Check out your portfolio center. Please also check ongoing floating volatility patterns of Federal Agricultural and Trane Technologies.

Diversification Opportunities for Federal Agricultural and Trane Technologies

0.87

Correlation Coefficient

Federal Agricultural  Trane Technologies

Very poor diversification

The 3 months correlation between Federal and Trane is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Federal Agricultural Mortgage and Trane Technologies plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Trane Technologies plc 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 Trane Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Trane Technologies plc has no effect on the direction of Federal Agricultural i.e., Federal Agricultural and Trane Technologies go up and down completely randomly.

Pair Corralation between Federal Agricultural and Trane Technologies

Assuming the 90 days horizon Federal Agricultural Mortgage is expected to generate 1.43 times more return on investment than Trane Technologies. However, Federal Agricultural is 1.43 times more volatile than Trane Technologies plc. It trades about 0.17 of its potential returns per unit of risk. Trane Technologies plc is currently generating about 0.04 per unit of risk. If you would invest  16,900  in Federal Agricultural Mortgage on September 13, 2024 and sell it today you would earn a total of  2,900  from holding Federal Agricultural Mortgage or generate 17.16% return on investment over 90 days.

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

Federal Agricultural Mortgage  vs.  Trane Technologies plc

Federal Agricultural

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Federal Agricultural Mortgage are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Federal Agricultural reported solid returns over the last few months and may actually be approaching a breakup point.

Trane Technologies plc

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Trane Technologies plc are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Trane Technologies reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Federal Agricultural and Trane Technologies

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

The idea behind Federal Agricultural Mortgage and Trane Technologies plc 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.