Correlation Between Federated Emerging and Federated Muni

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

By analyzing existing cross correlation between Federated Emerging Market and Federated Muni And, you can compare the effects of market volatilities on Federated Emerging and Federated Muni 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 Emerging with a short position of Federated Muni. Check out your portfolio center. Please also check ongoing floating volatility patterns of Federated Emerging and Federated Muni.

Diversification Opportunities for Federated Emerging and Federated Muni

0.66

Correlation Coefficient

Federated Emerging  Federated Muni

Poor diversification

The 3 months correlation between Federated and Federated is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Federated Emerging Market and Federated Muni And in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federated Muni And and Federated Emerging 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 Emerging Market are associated (or correlated) with Federated Muni. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federated Muni And has no effect on the direction of Federated Emerging i.e., Federated Emerging and Federated Muni go up and down completely randomly.

Pair Corralation between Federated Emerging and Federated Muni

Assuming the 90 days horizon Federated Emerging Market is expected to under-perform the Federated Muni. But the mutual fund apears to be less risky and, when comparing its historical volatility, Federated Emerging Market is 1.1 times less risky than Federated Muni. The mutual fund trades about -0.08 of its potential returns per unit of risk. The Federated Muni And is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  1,480  in Federated Muni And on October 6, 2024 and sell it today you would lose (6.00) from holding Federated Muni And or give up 0.41% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.41%
Values	Daily Returns

Federated Emerging Market  vs.  Federated Muni And

Federated Emerging Market

Risk-Adjusted Performance

0 of 100

Very Weak

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

Federated Muni And

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Federated Muni And has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Federated Muni 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 Emerging and Federated Muni

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

The idea behind Federated Emerging Market and Federated Muni And 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.