Correlation Between Federated Max-cap and Federated Kaufmann

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

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

Diversification Opportunities for Federated Max-cap and Federated Kaufmann

0.99

Correlation Coefficient

Federated Max-cap  Federated Kaufmann

No risk reduction

The 3 months correlation between Federated and Federated is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Federated Max Cap Index and Federated Kaufmann Large in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federated Kaufmann Large and Federated Max-cap 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 Max Cap Index are associated (or correlated) with Federated Kaufmann. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federated Kaufmann Large has no effect on the direction of Federated Max-cap i.e., Federated Max-cap and Federated Kaufmann go up and down completely randomly.

Pair Corralation between Federated Max-cap and Federated Kaufmann

Assuming the 90 days horizon Federated Max-cap is expected to generate 1.39 times less return on investment than Federated Kaufmann. But when comparing it to its historical volatility, Federated Max Cap Index is 1.27 times less risky than Federated Kaufmann. It trades about 0.19 of its potential returns per unit of risk. Federated Kaufmann Large is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  2,250  in Federated Kaufmann Large on September 3, 2024 and sell it today you would earn a total of  283.00  from holding Federated Kaufmann Large or generate 12.58% return on investment over 90 days.

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

Federated Max Cap Index  vs.  Federated Kaufmann Large

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-cap may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Federated Kaufmann Large

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Federated Kaufmann Large are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Federated Kaufmann may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Federated Max-cap and Federated Kaufmann

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

The idea behind Federated Max Cap Index and Federated Kaufmann Large 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.