Correlation Between Amazon and Federal Signal

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

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

Diversification Opportunities for Amazon and Federal Signal

0.91

Correlation Coefficient

Amazon  Federal Signal

Almost no diversification

The 3 months correlation between Amazon and Federal is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and Federal Signal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federal Signal and Amazon 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 Amazon Inc are associated (or correlated) with Federal Signal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federal Signal has no effect on the direction of Amazon i.e., Amazon and Federal Signal go up and down completely randomly.

Pair Corralation between Amazon and Federal Signal

Assuming the 90 days horizon Amazon is expected to generate 1.48 times less return on investment than Federal Signal. But when comparing it to its historical volatility, Amazon Inc is 1.81 times less risky than Federal Signal. It trades about 0.2 of its potential returns per unit of risk. Federal Signal is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  6,290  in Federal Signal on April 21, 2025 and sell it today you would earn a total of  2,560  from holding Federal Signal or generate 40.7% return on investment over 90 days.

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

Amazon Inc  vs.  Federal Signal

Amazon Inc

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Amazon Inc are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Amazon reported solid returns over the last few months and may actually be approaching a breakup point.

Federal Signal

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Federal Signal are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Federal Signal reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Amazon and Federal Signal

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

The idea behind Amazon Inc and Federal Signal 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..