Correlation Between Federal Natl and Federal National

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

By analyzing existing cross correlation between Federal Natl Pfd and Federal National Mortgage, you can compare the effects of market volatilities on Federal Natl and Federal National 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 Natl with a short position of Federal National. Check out your portfolio center. Please also check ongoing floating volatility patterns of Federal Natl and Federal National.

Diversification Opportunities for Federal Natl and Federal National

1.0

Correlation Coefficient

Federal Natl  Federal National

No risk reduction

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

Pair Corralation between Federal Natl and Federal National

Assuming the 90 days horizon Federal Natl Pfd is expected to generate 1.17 times more return on investment than Federal National. However, Federal Natl is 1.17 times more volatile than Federal National Mortgage. It trades about 0.19 of its potential returns per unit of risk. Federal National Mortgage is currently generating about 0.21 per unit of risk. If you would invest  610.00  in Federal Natl Pfd on September 3, 2024 and sell it today you would earn a total of  1,030  from holding Federal Natl Pfd or generate 168.85% return on investment over 90 days.

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

Federal Natl Pfd  vs.  Federal National Mortgage

Federal Natl Pfd

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Federal Natl Pfd are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite quite sluggish basic indicators, Federal Natl disclosed solid returns over the last few months and may actually be approaching a breakup point.

Federal National Mortgage

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Federal National Mortgage are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Federal National disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Federal Natl and Federal National

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

The idea behind Federal Natl Pfd and Federal National Mortgage 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 Transaction History module to view history of all your transactions and understand their impact on performance.