Correlation Between Federal Signal and Munters Group

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

By analyzing existing cross correlation between Federal Signal and Munters Group AB, you can compare the effects of market volatilities on Federal Signal and Munters Group 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 Munters Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Federal Signal and Munters Group.

Diversification Opportunities for Federal Signal and Munters Group

0.5

Correlation Coefficient

Federal Signal  Munters Group

Very weak diversification

The 3 months correlation between Federal and Munters is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Federal Signal and Munters Group AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Munters Group AB 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 Munters Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Munters Group AB has no effect on the direction of Federal Signal i.e., Federal Signal and Munters Group go up and down completely randomly.

Pair Corralation between Federal Signal and Munters Group

Assuming the 90 days horizon Federal Signal is expected to generate 1.26 times more return on investment than Munters Group. However, Federal Signal is 1.26 times more volatile than Munters Group AB. It trades about 0.17 of its potential returns per unit of risk. Munters Group AB is currently generating about 0.14 per unit of risk. If you would invest  6,290  in Federal Signal on April 20, 2025 and sell it today you would earn a total of  2,610  from holding Federal Signal or generate 41.49% return on investment over 90 days.

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

Federal Signal  vs.  Munters Group AB

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.

Munters Group AB

Risk-Adjusted Performance

Good

Over the last 90 days Munters Group AB has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly weak basic indicators, Munters Group reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Federal Signal and Munters Group

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

The idea behind Federal Signal and Munters Group AB 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.