Correlation Between Federated Pennsylvania and Western Asset

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

By analyzing existing cross correlation between Federated Pennsylvania Municipal and Western Asset Total, you can compare the effects of market volatilities on Federated Pennsylvania and Western Asset 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 Pennsylvania with a short position of Western Asset. Check out your portfolio center. Please also check ongoing floating volatility patterns of Federated Pennsylvania and Western Asset.

Diversification Opportunities for Federated Pennsylvania and Western Asset

0.82

Correlation Coefficient

Federated Pennsylvania  Western Asset

Very poor diversification

The 3 months correlation between FEDERATED and Western is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Federated Pennsylvania Municip and Western Asset Total in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Asset Total and Federated Pennsylvania 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 Pennsylvania Municipal are associated (or correlated) with Western Asset. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Asset Total has no effect on the direction of Federated Pennsylvania i.e., Federated Pennsylvania and Western Asset go up and down completely randomly.

Pair Corralation between Federated Pennsylvania and Western Asset

Assuming the 90 days horizon Federated Pennsylvania Municipal is expected to generate 1.28 times more return on investment than Western Asset. However, Federated Pennsylvania is 1.28 times more volatile than Western Asset Total. It trades about 0.07 of its potential returns per unit of risk. Western Asset Total is currently generating about 0.05 per unit of risk. If you would invest  1,006  in Federated Pennsylvania Municipal on September 4, 2024 and sell it today you would earn a total of  10.00  from holding Federated Pennsylvania Municipal or generate 0.99% return on investment over 90 days.

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

Federated Pennsylvania Municip  vs.  Western Asset Total

Federated Pennsylvania

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Federated Pennsylvania Municipal are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Federated Pennsylvania is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Western Asset Total

Risk-Adjusted Performance

3 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Western Asset Total are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Western Asset 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 Pennsylvania and Western Asset

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

The idea behind Federated Pennsylvania Municipal and Western Asset Total 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.