Correlation Between Federated and Federated Max-cap

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

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

Diversification Opportunities for Federated and Federated Max-cap

-0.56

Correlation Coefficient

Federated  Federated Max-cap

Excellent diversification

The 3 months correlation between Federated and Federated is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Federated Gov Sec and Federated Max Cap Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federated Max Cap and Federated 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 Gov Sec are associated (or correlated) with Federated Max-cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federated Max Cap has no effect on the direction of Federated i.e., Federated and Federated Max-cap go up and down completely randomly.

Pair Corralation between Federated and Federated Max-cap

Assuming the 90 days horizon Federated is expected to generate 4.3 times less return on investment than Federated Max-cap. But when comparing it to its historical volatility, Federated Gov Sec is 7.13 times less risky than Federated Max-cap. It trades about 0.08 of its potential returns per unit of risk. Federated Max Cap Index is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  670.00  in Federated Max Cap Index on September 5, 2024 and sell it today you would earn a total of  194.00  from holding Federated Max Cap Index or generate 28.96% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.8%
Values	Daily Returns

Federated Gov Sec  vs.  Federated Max Cap Index

Federated Gov Sec

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Federated Gov Sec has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Federated is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Federated Max Cap

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Federated Max Cap Index are ranked lower than 17 (%) 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.

Pair Trading with Federated and Federated Max-cap

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

The idea behind Federated Gov Sec and Federated Max Cap Index 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.

Check out your portfolio center.

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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.