Correlation Between Federal Agricultural and United Internet

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

Diversification Opportunities for Federal Agricultural and United Internet

-0.87

Correlation Coefficient

Federal Agricultural  United Internet

Pay attention - limited upside

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

Pair Corralation between Federal Agricultural and United Internet

Assuming the 90 days horizon Federal Agricultural Mortgage is expected to generate 0.9 times more return on investment than United Internet. However, Federal Agricultural Mortgage is 1.11 times less risky than United Internet. It trades about 0.12 of its potential returns per unit of risk. United Internet AG is currently generating about -0.13 per unit of risk. If you would invest  16,386  in Federal Agricultural Mortgage on September 24, 2024 and sell it today you would earn a total of  2,714  from holding Federal Agricultural Mortgage or generate 16.56% return on investment over 90 days.

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

Federal Agricultural Mortgage  vs.  United Internet AG

Federal Agricultural

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Federal Agricultural Mortgage are ranked lower than 9 (%) 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.

United Internet AG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days United Internet AG has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's fundamental indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Federal Agricultural and United Internet

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

The idea behind Federal Agricultural Mortgage and United Internet AG 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.