Correlation Between Federal Agricultural and Credit Acceptance

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

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

Diversification Opportunities for Federal Agricultural and Credit Acceptance

-0.62

Correlation Coefficient

Federal Agricultural  Credit Acceptance

Excellent diversification

The 3 months correlation between Federal and Credit is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding Federal Agricultural Mortgage and Credit Acceptance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Credit Acceptance and Federal Agricultural 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 Agricultural Mortgage are associated (or correlated) with Credit Acceptance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Credit Acceptance has no effect on the direction of Federal Agricultural i.e., Federal Agricultural and Credit Acceptance go up and down completely randomly.

Pair Corralation between Federal Agricultural and Credit Acceptance

Assuming the 90 days trading horizon Federal Agricultural Mortgage is expected to generate 0.11 times more return on investment than Credit Acceptance. However, Federal Agricultural Mortgage is 8.82 times less risky than Credit Acceptance. It trades about 0.06 of its potential returns per unit of risk. Credit Acceptance is currently generating about -0.15 per unit of risk. If you would invest  2,505  in Federal Agricultural Mortgage on February 23, 2024 and sell it today you would earn a total of  8.00  from holding Federal Agricultural Mortgage or generate 0.32% return on investment over 90 days.

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

Federal Agricultural Mortgage  vs.  Credit Acceptance

Federal Agricultural

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Federal Agricultural Mortgage are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound primary indicators, Federal Agricultural is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Credit Acceptance

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Credit Acceptance has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Federal Agricultural and Credit Acceptance

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

The idea behind Federal Agricultural Mortgage and Credit Acceptance 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.

Check out your portfolio center.

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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.