Correlation Between Federal National and Federal Hme

Can any of the company-specific risk be diversified away by investing in both Federal National and Federal Hme 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 Federal Hme 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 Federal Hme 655, you can compare the effects of market volatilities on Federal National and Federal Hme 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 Federal Hme. Check out your portfolio center. Please also check ongoing floating volatility patterns of Federal National and Federal Hme.

Diversification Opportunities for Federal National and Federal Hme

0.99

Correlation Coefficient

Federal National  Federal Hme

No risk reduction

The 3 months correlation between Federal and Federal is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Federal National Mortgage and Federal Hme 655 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federal Hme 655 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 Federal Hme. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federal Hme 655 has no effect on the direction of Federal National i.e., Federal National and Federal Hme go up and down completely randomly.

Pair Corralation between Federal National and Federal Hme

Assuming the 90 days horizon Federal National Mortgage is expected to generate 0.93 times more return on investment than Federal Hme. However, Federal National Mortgage is 1.07 times less risky than Federal Hme. It trades about 0.21 of its potential returns per unit of risk. Federal Hme 655 is currently generating about 0.19 per unit of risk. If you would invest  585.00  in Federal National Mortgage on September 4, 2024 and sell it today you would earn a total of  1,007  from holding Federal National Mortgage or generate 172.14% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.46%
Values	Daily Returns

Federal National Mortgage  vs.  Federal Hme 655

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. Even with relatively sluggish basic indicators, Federal National reported solid returns over the last few months and may actually be approaching a breakup point.

Federal Hme 655

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Federal Hme 655 are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite fairly sluggish forward-looking signals, Federal Hme demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Federal National and Federal Hme

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

The idea behind Federal National Mortgage and Federal Hme 655 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.