Correlation Between Omni Small and Federated Max

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

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

Diversification Opportunities for Omni Small and Federated Max

0.86

Correlation Coefficient

Omni Small  Federated Max

Very poor diversification

The 3 months correlation between Omni and Federated is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Omni Small Cap Value 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 Omni Small 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 Omni Small Cap Value 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 Omni Small i.e., Omni Small and Federated Max go up and down completely randomly.

Pair Corralation between Omni Small and Federated Max

Assuming the 90 days horizon Omni Small is expected to generate 1.17 times less return on investment than Federated Max. In addition to that, Omni Small is 1.27 times more volatile than Federated Max Cap Index. It trades about 0.04 of its total potential returns per unit of risk. Federated Max Cap Index is currently generating about 0.05 per unit of volatility. If you would invest  662.00  in Federated Max Cap Index on September 13, 2024 and sell it today you would earn a total of  207.00  from holding Federated Max Cap Index or generate 31.27% return on investment over 90 days.

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

Omni Small Cap Value  vs.  Federated Max Cap Index

Omni Small Cap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Omni Small Cap Value has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Omni Small is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Federated Max Cap

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Federated Max Cap Index are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Federated Max may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Omni Small and Federated Max

The main advantage of trading using opposite Omni Small and Federated Max positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Omni Small 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 Omni Small Cap Value 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.

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 Transaction History module to view history of all your transactions and understand their impact on performance.