Correlation Between Federated Emerging and Federated Prudent

Can any of the company-specific risk be diversified away by investing in both Federated Emerging and Federated Prudent 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 Prudent 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 Prudent Bear, you can compare the effects of market volatilities on Federated Emerging and Federated Prudent 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 Prudent. Check out your portfolio center. Please also check ongoing floating volatility patterns of Federated Emerging and Federated Prudent.

Diversification Opportunities for Federated Emerging and Federated Prudent

0.08

Correlation Coefficient

Federated Emerging  Federated Prudent

Significant diversification

The 3 months correlation between Federated and Federated is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Federated Emerging Market and Federated Prudent Bear in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federated Prudent Bear 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 Prudent. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federated Prudent Bear has no effect on the direction of Federated Emerging i.e., Federated Emerging and Federated Prudent go up and down completely randomly.

Pair Corralation between Federated Emerging and Federated Prudent

Assuming the 90 days horizon Federated Emerging Market is expected to generate 0.21 times more return on investment than Federated Prudent. However, Federated Emerging Market is 4.66 times less risky than Federated Prudent. It trades about -0.03 of its potential returns per unit of risk. Federated Prudent Bear is currently generating about -0.17 per unit of risk. If you would invest  783.00  in Federated Emerging Market on October 6, 2024 and sell it today you would lose (4.00) from holding Federated Emerging Market or give up 0.51% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	97.62%
Values	Daily Returns

Federated Emerging Market  vs.  Federated Prudent Bear

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 Prudent Bear

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Federated Prudent Bear has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's fundamental indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Federated Emerging and Federated Prudent

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

The idea behind Federated Emerging Market and Federated Prudent Bear 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 Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .