Correlation Between Ebro Foods and Federal Agricultural

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

By analyzing existing cross correlation between Ebro Foods SA and Federal Agricultural Mortgage, you can compare the effects of market volatilities on Ebro Foods and Federal Agricultural 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 Ebro Foods with a short position of Federal Agricultural. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ebro Foods and Federal Agricultural.

Diversification Opportunities for Ebro Foods and Federal Agricultural

-0.09

Correlation Coefficient

Ebro Foods  Federal Agricultural

Good diversification

The 3 months correlation between Ebro and Federal is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding Ebro Foods SA and Federal Agricultural Mortgage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federal Agricultural and Ebro Foods 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 Ebro Foods SA are associated (or correlated) with Federal Agricultural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federal Agricultural has no effect on the direction of Ebro Foods i.e., Ebro Foods and Federal Agricultural go up and down completely randomly.

Pair Corralation between Ebro Foods and Federal Agricultural

Assuming the 90 days horizon Ebro Foods is expected to generate 9.18 times less return on investment than Federal Agricultural. But when comparing it to its historical volatility, Ebro Foods SA is 2.4 times less risky than Federal Agricultural. It trades about 0.04 of its potential returns per unit of risk. Federal Agricultural Mortgage is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  16,684  in Federal Agricultural Mortgage on September 20, 2024 and sell it today you would earn a total of  3,116  from holding Federal Agricultural Mortgage or generate 18.68% return on investment over 90 days.

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

Ebro Foods SA  vs.  Federal Agricultural Mortgage

Ebro Foods SA

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Ebro Foods SA are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Ebro Foods is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Federal Agricultural

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Federal Agricultural Mortgage are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Federal Agricultural reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ebro Foods and Federal Agricultural

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

The idea behind Ebro Foods SA and Federal Agricultural Mortgage 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.