Correlation Between Federal Agricultural and OneMain Holdings

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

Diversification Opportunities for Federal Agricultural and OneMain Holdings

-0.71

Correlation Coefficient

Federal Agricultural  OneMain Holdings

Pay attention - limited upside

The 3 months correlation between Federal and OneMain is -0.71. Overlapping area represents the amount of risk that can be diversified away by holding Federal Agricultural Mortgage and OneMain Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on OneMain Holdings 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 OneMain Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of OneMain Holdings has no effect on the direction of Federal Agricultural i.e., Federal Agricultural and OneMain Holdings go up and down completely randomly.

Pair Corralation between Federal Agricultural and OneMain Holdings

Assuming the 90 days trading horizon Federal Agricultural Mortgage is expected to under-perform the OneMain Holdings. But the preferred stock apears to be less risky and, when comparing its historical volatility, Federal Agricultural Mortgage is 2.96 times less risky than OneMain Holdings. The preferred stock trades about -0.06 of its potential returns per unit of risk. The OneMain Holdings is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  4,664  in OneMain Holdings on September 5, 2024 and sell it today you would earn a total of  1,063  from holding OneMain Holdings or generate 22.79% return on investment over 90 days.

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

Federal Agricultural Mortgage  vs.  OneMain Holdings

Federal Agricultural

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Federal Agricultural Mortgage has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable primary indicators, Federal Agricultural is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

OneMain Holdings

Risk-Adjusted Performance

11 of 100

Good

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

Pair Trading with Federal Agricultural and OneMain Holdings

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

The idea behind Federal Agricultural Mortgage and OneMain Holdings 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.