Correlation Between Marriott International and Federal Agricultural

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

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

Diversification Opportunities for Marriott International and Federal Agricultural

0.96

Correlation Coefficient

Marriott International  Federal Agricultural

Almost no diversification

The 3 months correlation between Marriott and Federal is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Marriott International and Federal Agricultural Mortgage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federal Agricultural and Marriott International 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 Marriott International 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 Marriott International i.e., Marriott International and Federal Agricultural go up and down completely randomly.

Pair Corralation between Marriott International and Federal Agricultural

Assuming the 90 days horizon Marriott International is expected to generate 1.06 times less return on investment than Federal Agricultural. But when comparing it to its historical volatility, Marriott International is 1.49 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 0.07 of returns per unit of risk over similar time horizon. If you would invest  9,943  in Federal Agricultural Mortgage on September 25, 2024 and sell it today you would earn a total of  9,157  from holding Federal Agricultural Mortgage or generate 92.09% return on investment over 90 days.

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

Marriott International  vs.  Federal Agricultural Mortgage

Marriott International

Risk-Adjusted Performance

16 of 100

Solid

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

Federal Agricultural

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Federal Agricultural Mortgage are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Federal Agricultural reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Marriott International and Federal Agricultural

The main advantage of trading using opposite Marriott International and Federal Agricultural positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Marriott International 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 Marriott International 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.