Correlation Between Federated Investors and Main Street

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

By analyzing existing cross correlation between Federated Investors B and Main Street Capital, you can compare the effects of market volatilities on Federated Investors and Main Street 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 Investors with a short position of Main Street. Check out your portfolio center. Please also check ongoing floating volatility patterns of Federated Investors and Main Street.

Diversification Opportunities for Federated Investors and Main Street

0.7

Correlation Coefficient

Federated Investors  Main Street

Poor diversification

The 3 months correlation between Federated and Main is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Federated Investors B and Main Street Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Main Street Capital and Federated Investors 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 Investors B are associated (or correlated) with Main Street. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Main Street Capital has no effect on the direction of Federated Investors i.e., Federated Investors and Main Street go up and down completely randomly.

Pair Corralation between Federated Investors and Main Street

Considering the 90-day investment horizon Federated Investors B is expected to under-perform the Main Street. In addition to that, Federated Investors is 1.51 times more volatile than Main Street Capital. It trades about -0.17 of its total potential returns per unit of risk. Main Street Capital is currently generating about 0.54 per unit of volatility. If you would invest  5,485  in Main Street Capital on October 4, 2024 and sell it today you would earn a total of  441.00  from holding Main Street Capital or generate 8.04% return on investment over 90 days.

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

Federated Investors B  vs.  Main Street Capital

Federated Investors

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Federated Investors B are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite fairly abnormal technical indicators, Federated Investors may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Main Street Capital

Risk-Adjusted Performance

29 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Main Street Capital are ranked lower than 29 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady forward indicators, Main Street displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Federated Investors and Main Street

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

The idea behind Federated Investors B and Main Street Capital 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.