Correlation Between Consumer Portfolio and Federal Agricultural

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

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

Diversification Opportunities for Consumer Portfolio and Federal Agricultural

0.85

Correlation Coefficient

Consumer Portfolio  Federal Agricultural

Very poor diversification

The 3 months correlation between Consumer and Federal is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Consumer Portfolio Services and Federal Agricultural Mortgage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federal Agricultural and Consumer Portfolio 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 Consumer Portfolio Services 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 Consumer Portfolio i.e., Consumer Portfolio and Federal Agricultural go up and down completely randomly.

Pair Corralation between Consumer Portfolio and Federal Agricultural

Given the investment horizon of 90 days Consumer Portfolio Services is expected to generate 0.87 times more return on investment than Federal Agricultural. However, Consumer Portfolio Services is 1.14 times less risky than Federal Agricultural. It trades about 0.1 of its potential returns per unit of risk. Federal Agricultural Mortgage is currently generating about -0.18 per unit of risk. If you would invest  1,036  in Consumer Portfolio Services on September 27, 2024 and sell it today you would earn a total of  28.00  from holding Consumer Portfolio Services or generate 2.7% return on investment over 90 days.

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

Consumer Portfolio Services  vs.  Federal Agricultural Mortgage

Consumer Portfolio

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Consumer Portfolio Services are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Consumer Portfolio may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Federal Agricultural

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Federal Agricultural Mortgage are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent technical and fundamental indicators, Federal Agricultural may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Consumer Portfolio and Federal Agricultural

The main advantage of trading using opposite Consumer Portfolio and Federal Agricultural positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Consumer Portfolio 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 Consumer Portfolio Services 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.