Correlation Between Federated Prudent and Federated Max

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

By analyzing existing cross correlation between Federated Prudent Bear and Federated Max Cap Index, you can compare the effects of market volatilities on Federated Prudent and Federated Max 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 Federated Prudent with a short position of Federated Max. Check out your portfolio center. Please also check ongoing floating volatility patterns of Federated Prudent and Federated Max.

Diversification Opportunities for Federated Prudent and Federated Max

-1.0

Correlation Coefficient

Federated Prudent  Federated Max

Pay attention - limited upside

The 3 months correlation between Federated and Federated is -1.0. Overlapping area represents the amount of risk that can be diversified away by holding Federated Prudent Bear and Federated Max Cap Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federated Max Cap and Federated Prudent 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 Federated Prudent Bear are associated (or correlated) with Federated Max. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federated Max Cap has no effect on the direction of Federated Prudent i.e., Federated Prudent and Federated Max go up and down completely randomly.

Pair Corralation between Federated Prudent and Federated Max

Assuming the 90 days horizon Federated Prudent Bear is expected to under-perform the Federated Max. But the mutual fund apears to be less risky and, when comparing its historical volatility, Federated Prudent Bear is 1.05 times less risky than Federated Max. The mutual fund trades about -0.17 of its potential returns per unit of risk. The Federated Max Cap Index is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  783.00  in Federated Max Cap Index on August 31, 2024 and sell it today you would earn a total of  68.00  from holding Federated Max Cap Index or generate 8.68% return on investment over 90 days.

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

Federated Prudent Bear  vs.  Federated Max Cap Index

Federated Prudent Bear

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Federated Prudent Bear has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Federated Max Cap

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Federated Max Cap Index are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward-looking signals, Federated Max may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Federated Prudent and Federated Max

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

The idea behind Federated Prudent Bear and Federated Max Cap Index 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..