Correlation Between Federated High and Federated Strategic

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

Diversification Opportunities for Federated High and Federated Strategic

-0.05

Correlation Coefficient

Federated High  Federated Strategic

Good diversification

The 3 months correlation between Federated and Federated is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Federated High Income and Federated Strategic Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federated Strategic Value 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 Strategic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federated Strategic Value has no effect on the direction of Federated High i.e., Federated High and Federated Strategic go up and down completely randomly.

Pair Corralation between Federated High and Federated Strategic

Assuming the 90 days horizon Federated High Income is expected to generate 0.36 times more return on investment than Federated Strategic. However, Federated High Income is 2.77 times less risky than Federated Strategic. It trades about 0.11 of its potential returns per unit of risk. Federated Strategic Value is currently generating about 0.02 per unit of risk. If you would invest  587.00  in Federated High Income on October 4, 2024 and sell it today you would earn a total of  91.00  from holding Federated High Income or generate 15.5% 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 Strategic Value

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 Strategic Value

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Federated Strategic Value has generated negative risk-adjusted returns adding no value to fund investors. 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.

Pair Trading with Federated High and Federated Strategic

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

The idea behind Federated High Income and Federated Strategic Value 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.