Correlation Between Federated Gov and Federated Intermediate

Can any of the company-specific risk be diversified away by investing in both Federated Gov and Federated Intermediate 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 Gov and Federated Intermediate 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 Intermediate Porate, you can compare the effects of market volatilities on Federated Gov and Federated Intermediate 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 Gov with a short position of Federated Intermediate. Check out your portfolio center. Please also check ongoing floating volatility patterns of Federated Gov and Federated Intermediate.

Diversification Opportunities for Federated Gov and Federated Intermediate

0.97

Correlation Coefficient

Federated Gov  Federated Intermediate

Almost no diversification

The 3 months correlation between Federated and Federated is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Federated Gov Sec and Federated Intermediate Porate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federated Intermediate and Federated Gov 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 Intermediate. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federated Intermediate has no effect on the direction of Federated Gov i.e., Federated Gov and Federated Intermediate go up and down completely randomly.

Pair Corralation between Federated Gov and Federated Intermediate

Assuming the 90 days horizon Federated Gov is expected to generate 2.36 times less return on investment than Federated Intermediate. But when comparing it to its historical volatility, Federated Gov Sec is 2.79 times less risky than Federated Intermediate. It trades about 0.13 of its potential returns per unit of risk. Federated Intermediate Porate is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  854.00  in Federated Intermediate Porate on September 12, 2024 and sell it today you would earn a total of  4.00  from holding Federated Intermediate Porate or generate 0.47% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	95.45%
Values	Daily Returns

Federated Gov Sec  vs.  Federated Intermediate Porate

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 Gov is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Federated Intermediate

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Federated Gov and Federated Intermediate

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

The idea behind Federated Gov Sec and Federated Intermediate Porate 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.