Correlation Between Federal Signal and TOMI Environmental

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

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

Diversification Opportunities for Federal Signal and TOMI Environmental

-0.47

Correlation Coefficient

Federal Signal  TOMI Environmental

Very good diversification

The 3 months correlation between Federal and TOMI is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Federal Signal and TOMI Environmental Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TOMI Environmental and Federal Signal 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 Signal are associated (or correlated) with TOMI Environmental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TOMI Environmental has no effect on the direction of Federal Signal i.e., Federal Signal and TOMI Environmental go up and down completely randomly.

Pair Corralation between Federal Signal and TOMI Environmental

Considering the 90-day investment horizon Federal Signal is expected to generate 0.44 times more return on investment than TOMI Environmental. However, Federal Signal is 2.26 times less risky than TOMI Environmental. It trades about 0.1 of its potential returns per unit of risk. TOMI Environmental Solutions is currently generating about -0.03 per unit of risk. If you would invest  8,856  in Federal Signal on September 3, 2024 and sell it today you would earn a total of  955.00  from holding Federal Signal or generate 10.78% return on investment over 90 days.

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

Federal Signal  vs.  TOMI Environmental Solutions

Federal Signal

Risk-Adjusted Performance

7 of 100

OK

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

TOMI Environmental

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days TOMI Environmental Solutions has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's primary indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Federal Signal and TOMI Environmental

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

The idea behind Federal Signal and TOMI Environmental Solutions 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.