Correlation Between Federated High and Federated Hermes

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

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

Diversification Opportunities for Federated High and Federated Hermes

-0.29

Correlation Coefficient

Federated High  Federated Hermes

Very good diversification

The 3 months correlation between Federated and Federated is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Federated High Income and Federated Hermes Emerging in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federated Hermes Emerging and Federated High 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 High Income are associated (or correlated) with Federated Hermes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federated Hermes Emerging has no effect on the direction of Federated High i.e., Federated High and Federated Hermes go up and down completely randomly.

Pair Corralation between Federated High and Federated Hermes

Assuming the 90 days horizon Federated High Income is expected to generate 0.14 times more return on investment than Federated Hermes. However, Federated High Income is 7.11 times less risky than Federated Hermes. It trades about 0.0 of its potential returns per unit of risk. Federated Hermes Emerging is currently generating about -0.02 per unit of risk. If you would invest  679.00  in Federated High Income on September 20, 2024 and sell it today you would earn a total of  0.00  from holding Federated High Income or generate 0.0% return on investment over 90 days.

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

Federated High Income  vs.  Federated Hermes Emerging

Federated High Income

Risk-Adjusted Performance

0 of 100

Very Weak

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

Federated Hermes Emerging

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind Federated High Income and Federated Hermes Emerging 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.