Correlation Between Federal Agricultural and General Mills

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

Diversification Opportunities for Federal Agricultural and General Mills

0.89

Correlation Coefficient

Federal Agricultural  General Mills

Very poor diversification

The 3 months correlation between Federal and General is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Federal Agricultural Mortgage and General Mills in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on General Mills 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 General Mills. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of General Mills has no effect on the direction of Federal Agricultural i.e., Federal Agricultural and General Mills go up and down completely randomly.

Pair Corralation between Federal Agricultural and General Mills

Assuming the 90 days horizon Federal Agricultural Mortgage is expected to generate 1.35 times more return on investment than General Mills. However, Federal Agricultural is 1.35 times more volatile than General Mills. It trades about 0.16 of its potential returns per unit of risk. General Mills is currently generating about 0.17 per unit of risk. If you would invest  16,286  in Federal Agricultural Mortgage on September 21, 2024 and sell it today you would earn a total of  3,514  from holding Federal Agricultural Mortgage or generate 21.58% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.46%
Values	Daily Returns

Federal Agricultural Mortgage  vs.  General Mills

Federal Agricultural

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Federal Agricultural Mortgage are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Federal Agricultural reported solid returns over the last few months and may actually be approaching a breakup point.

General Mills

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in General Mills are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, General Mills unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Federal Agricultural and General Mills

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

The idea behind Federal Agricultural Mortgage and General Mills 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.