Correlation Between Federated High and Small Cap

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

By analyzing existing cross correlation between Federated High Yield and Small Cap Growth, you can compare the effects of market volatilities on Federated High and Small Cap 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 Small Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Federated High and Small Cap.

Diversification Opportunities for Federated High and Small Cap

0.25

Correlation Coefficient

Federated High  Small Cap

Modest diversification

The 3 months correlation between Federated and Small is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Federated High Yield and Small Cap Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Growth 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 Yield are associated (or correlated) with Small Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Cap Growth has no effect on the direction of Federated High i.e., Federated High and Small Cap go up and down completely randomly.

Pair Corralation between Federated High and Small Cap

If you would invest  0.00  in Federated High Yield on December 21, 2024 and sell it today you would earn a total of  0.00  from holding Federated High Yield or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	4.55%
Values	Daily Returns

Federated High Yield  vs.  Small Cap Growth

Federated High Yield

Risk-Adjusted Performance

OK

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

Small Cap Growth

Risk-Adjusted Performance

Very Weak

Over the last 90 days Small Cap Growth has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Federated High and Small Cap

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

The idea behind Federated High Yield and Small Cap Growth 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.