Correlation Between Federal National and CNFinance Holdings

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

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

Diversification Opportunities for Federal National and CNFinance Holdings

-0.5

Correlation Coefficient

Federal National  CNFinance Holdings

Very good diversification

The 3 months correlation between Federal and CNFinance is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Federal National Mortgage and CNFinance Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CNFinance Holdings and Federal National 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 National Mortgage are associated (or correlated) with CNFinance Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CNFinance Holdings has no effect on the direction of Federal National i.e., Federal National and CNFinance Holdings go up and down completely randomly.

Pair Corralation between Federal National and CNFinance Holdings

Assuming the 90 days horizon Federal National Mortgage is expected to generate 0.8 times more return on investment than CNFinance Holdings. However, Federal National Mortgage is 1.26 times less risky than CNFinance Holdings. It trades about 0.23 of its potential returns per unit of risk. CNFinance Holdings is currently generating about 0.04 per unit of risk. If you would invest  564.00  in Federal National Mortgage on September 15, 2024 and sell it today you would earn a total of  1,086  from holding Federal National Mortgage or generate 192.55% return on investment over 90 days.

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

Federal National Mortgage  vs.  CNFinance Holdings

Federal National Mortgage

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Federal National Mortgage are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting basic indicators, Federal National displayed solid returns over the last few months and may actually be approaching a breakup point.

CNFinance Holdings

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in CNFinance Holdings are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating basic indicators, CNFinance Holdings reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Federal National and CNFinance Holdings

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

The idea behind Federal National Mortgage and CNFinance Holdings 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.