Correlation Between Federal Signal and Arq

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

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

Diversification Opportunities for Federal Signal and Arq

0.32

Correlation Coefficient

Federal Signal  Arq

Weak diversification

The 3 months correlation between Federal and Arq is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Federal Signal and Arq Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arq Inc 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 Arq. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arq Inc has no effect on the direction of Federal Signal i.e., Federal Signal and Arq go up and down completely randomly.

Pair Corralation between Federal Signal and Arq

Considering the 90-day investment horizon Federal Signal is expected to generate 3.28 times less return on investment than Arq. But when comparing it to its historical volatility, Federal Signal is 3.92 times less risky than Arq. It trades about 0.24 of its potential returns per unit of risk. Arq Inc is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  412.00  in Arq Inc on March 5, 2025 and sell it today you would earn a total of  99.00  from holding Arq Inc or generate 24.03% return on investment over 90 days.

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

Federal Signal  vs.  Arq Inc

Federal Signal

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Federal Signal are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent basic indicators, Federal Signal unveiled solid returns over the last few months and may actually be approaching a breakup point.

Arq Inc

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Arq Inc are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating basic indicators, Arq may actually be approaching a critical reversion point that can send shares even higher in July 2025.

Pair Trading with Federal Signal and Arq

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

The idea behind Federal Signal and Arq Inc 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.