Correlation Between Aduro Clean and Federal Signal

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

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

Diversification Opportunities for Aduro Clean and Federal Signal

0.51

Correlation Coefficient

Aduro Clean  Federal Signal

Very weak diversification

The 3 months correlation between Aduro and Federal is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Aduro Clean Technologies and Federal Signal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federal Signal and Aduro Clean 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 Aduro Clean Technologies are associated (or correlated) with Federal Signal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federal Signal has no effect on the direction of Aduro Clean i.e., Aduro Clean and Federal Signal go up and down completely randomly.

Pair Corralation between Aduro Clean and Federal Signal

Assuming the 90 days horizon Aduro Clean Technologies is expected to generate 2.19 times more return on investment than Federal Signal. However, Aduro Clean is 2.19 times more volatile than Federal Signal. It trades about 0.07 of its potential returns per unit of risk. Federal Signal is currently generating about 0.0 per unit of risk. If you would invest  476.00  in Aduro Clean Technologies on September 25, 2024 and sell it today you would earn a total of  70.00  from holding Aduro Clean Technologies or generate 14.71% return on investment over 90 days.

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

Aduro Clean Technologies  vs.  Federal Signal

Aduro Clean Technologies

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Aduro Clean Technologies are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical indicators, Aduro Clean reported solid returns over the last few months and may actually be approaching a breakup point.

Federal Signal

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Federal Signal has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Federal Signal is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Aduro Clean and Federal Signal

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

The idea behind Aduro Clean Technologies and Federal Signal 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.