Correlation Between Federated Hermes and American Funds

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

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

Diversification Opportunities for Federated Hermes and American Funds

0.63

Correlation Coefficient

Federated Hermes  American Funds

Poor diversification

The 3 months correlation between Federated and American is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Federated Hermes Conservative and American Funds Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Funds Income and Federated Hermes 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 Hermes Conservative are associated (or correlated) with American Funds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Funds Income has no effect on the direction of Federated Hermes i.e., Federated Hermes and American Funds go up and down completely randomly.

Pair Corralation between Federated Hermes and American Funds

Assuming the 90 days horizon Federated Hermes is expected to generate 1.18 times less return on investment than American Funds. But when comparing it to its historical volatility, Federated Hermes Conservative is 4.67 times less risky than American Funds. It trades about 0.23 of its potential returns per unit of risk. American Funds Income is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  1,335  in American Funds Income on December 22, 2024 and sell it today you would earn a total of  20.00  from holding American Funds Income or generate 1.5% return on investment over 90 days.

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

Federated Hermes Conservative  vs.  American Funds Income

Federated Hermes Con

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Federated Hermes Conservative are ranked lower than 17 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Federated Hermes is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

American Funds Income

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in American Funds Income are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, American Funds 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 Hermes and American Funds

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

The idea behind Federated Hermes Conservative and American Funds Income 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.

Check out your portfolio center.

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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.