Correlation Between Federated Emerging and Federated Real

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

Diversification Opportunities for Federated Emerging and Federated Real

0.77

Correlation Coefficient

Federated Emerging  Federated Real

Poor diversification

The 3 months correlation between Federated and Federated is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Federated Emerging Market and Federated Real Return in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federated Real Return 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 Real. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federated Real Return has no effect on the direction of Federated Emerging i.e., Federated Emerging and Federated Real go up and down completely randomly.

Pair Corralation between Federated Emerging and Federated Real

Assuming the 90 days horizon Federated Emerging Market is expected to generate 0.85 times more return on investment than Federated Real. However, Federated Emerging Market is 1.18 times less risky than Federated Real. It trades about -0.03 of its potential returns per unit of risk. Federated Real Return is currently generating about -0.18 per unit of risk. If you would invest  786.00  in Federated Emerging Market on September 21, 2024 and sell it today you would lose (1.00) from holding Federated Emerging Market or give up 0.13% of portfolio value over 90 days.

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

Federated Emerging Market  vs.  Federated Real Return

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 Real Return

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind Federated Emerging Market and Federated Real Return 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.