Correlation Between Federal Home and Euronext

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

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

Diversification Opportunities for Federal Home and Euronext

0.66

Correlation Coefficient

Federal Home  Euronext

Poor diversification

The 3 months correlation between Federal and Euronext is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Federal Home Loan and Euronext NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Euronext NV and Federal Home 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 Home Loan are associated (or correlated) with Euronext. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Euronext NV has no effect on the direction of Federal Home i.e., Federal Home and Euronext go up and down completely randomly.

Pair Corralation between Federal Home and Euronext

Assuming the 90 days horizon Federal Home Loan is expected to generate 6.15 times more return on investment than Euronext. However, Federal Home is 6.15 times more volatile than Euronext NV. It trades about 0.21 of its potential returns per unit of risk. Euronext NV is currently generating about 0.09 per unit of risk. If you would invest  107.00  in Federal Home Loan on September 27, 2024 and sell it today you would earn a total of  147.00  from holding Federal Home Loan or generate 137.38% return on investment over 90 days.

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

Federal Home Loan  vs.  Euronext NV

Federal Home Loan

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Federal Home Loan are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Federal Home reported solid returns over the last few months and may actually be approaching a breakup point.

Euronext NV

Risk-Adjusted Performance

7 of 100

OK

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

Pair Trading with Federal Home and Euronext

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

The idea behind Federal Home Loan and Euronext NV 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .