Correlation Between Atmus Filtration and Federal Signal

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

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

Diversification Opportunities for Atmus Filtration and Federal Signal

0.43

Correlation Coefficient

Atmus Filtration  Federal Signal

Very weak diversification

The 3 months correlation between Atmus and Federal is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Atmus Filtration Technologies and Federal Signal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federal Signal and Atmus Filtration 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 Atmus Filtration 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 Atmus Filtration i.e., Atmus Filtration and Federal Signal go up and down completely randomly.

Pair Corralation between Atmus Filtration and Federal Signal

Given the investment horizon of 90 days Atmus Filtration Technologies is expected to generate 1.18 times more return on investment than Federal Signal. However, Atmus Filtration is 1.18 times more volatile than Federal Signal. It trades about 0.1 of its potential returns per unit of risk. Federal Signal is currently generating about 0.09 per unit of risk. If you would invest  1,947  in Atmus Filtration Technologies on September 19, 2024 and sell it today you would earn a total of  2,036  from holding Atmus Filtration Technologies or generate 104.57% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	79.64%
Values	Daily Returns

Atmus Filtration Technologies  vs.  Federal Signal

Atmus Filtration Tec

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Atmus Filtration Technologies are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively abnormal primary indicators, Atmus Filtration may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Federal Signal

Risk-Adjusted Performance

1 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Federal Signal are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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 Atmus Filtration and Federal Signal

The main advantage of trading using opposite Atmus Filtration and Federal Signal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Atmus Filtration 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 Atmus Filtration 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.