Correlation Between Federal Home and Sonos

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

By analyzing existing cross correlation between Federal Home 530 and Sonos Inc, you can compare the effects of market volatilities on Federal Home and Sonos 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 Sonos. Check out your portfolio center. Please also check ongoing floating volatility patterns of Federal Home and Sonos.

Diversification Opportunities for Federal Home and Sonos

0.81

Correlation Coefficient

Federal Home  Sonos

Very poor diversification

The 3 months correlation between Federal and Sonos is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Federal Home 530 and Sonos Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sonos Inc 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 530 are associated (or correlated) with Sonos. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sonos Inc has no effect on the direction of Federal Home i.e., Federal Home and Sonos go up and down completely randomly.

Pair Corralation between Federal Home and Sonos

Assuming the 90 days horizon Federal Home 530 is expected to generate 4.32 times more return on investment than Sonos. However, Federal Home is 4.32 times more volatile than Sonos Inc. It trades about 0.19 of its potential returns per unit of risk. Sonos Inc is currently generating about 0.15 per unit of risk. If you would invest  600.00  in Federal Home 530 on September 13, 2024 and sell it today you would earn a total of  1,092  from holding Federal Home 530 or generate 182.0% return on investment over 90 days.

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

Federal Home 530  vs.  Sonos Inc

Federal Home 530

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Federal Home 530 are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak forward-looking indicators, Federal Home reported solid returns over the last few months and may actually be approaching a breakup point.

Sonos Inc

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sonos Inc are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting basic indicators, Sonos displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Federal Home and Sonos

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

The idea behind Federal Home 530 and Sonos Inc 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.