Correlation Between Federal Home and Far East

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

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

Diversification Opportunities for Federal Home and Far East

0.39

Correlation Coefficient

Federal Home  Far East

Weak diversification

The 3 months correlation between Federal and Far is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Federal Home Loan and Far East Horizon in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Far East Horizon and Federal Home 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 Home Loan are associated (or correlated) with Far East. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Far East Horizon has no effect on the direction of Federal Home i.e., Federal Home and Far East go up and down completely randomly.

Pair Corralation between Federal Home and Far East

Assuming the 90 days horizon Federal Home Loan is expected to generate 0.74 times more return on investment than Far East. However, Federal Home Loan is 1.36 times less risky than Far East. It trades about 0.25 of its potential returns per unit of risk. Far East Horizon is currently generating about 0.16 per unit of risk. If you would invest  94.00  in Federal Home Loan on September 13, 2024 and sell it today you would earn a total of  178.00  from holding Federal Home Loan or generate 189.36% return on investment over 90 days.

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

Federal Home Loan  vs.  Far East Horizon

Federal Home Loan

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Federal Home Loan are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Federal Home reported solid returns over the last few months and may actually be approaching a breakup point.

Far East Horizon

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Far East Horizon are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Far East reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Federal Home and Far East

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

The idea behind Federal Home Loan and Far East Horizon 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.