Correlation Between Federated Strategic and Federated Max

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

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

Diversification Opportunities for Federated Strategic and Federated Max

0.83

Correlation Coefficient

Federated Strategic  Federated Max

Very poor diversification

The 3 months correlation between Federated and Federated is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Federated Strategic Value 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 Strategic 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 Strategic Value are associated (or correlated) with Federated Max. 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 Strategic i.e., Federated Strategic and Federated Max go up and down completely randomly.

Pair Corralation between Federated Strategic and Federated Max

Assuming the 90 days horizon Federated Strategic Value is expected to generate 0.72 times more return on investment than Federated Max. However, Federated Strategic Value is 1.4 times less risky than Federated Max. It trades about 0.19 of its potential returns per unit of risk. Federated Max Cap Index is currently generating about 0.12 per unit of risk. If you would invest  556.00  in Federated Strategic Value on August 31, 2024 and sell it today you would earn a total of  85.00  from holding Federated Strategic Value or generate 15.29% return on investment over 90 days.

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

Federated Strategic Value  vs.  Federated Max Cap Index

Federated Strategic Value

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Federated Strategic Value are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong essential indicators, Federated Strategic 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

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Federated Max Cap Index are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward-looking signals, Federated Max may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Federated Strategic and Federated Max

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

The idea behind Federated Strategic Value 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.

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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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.