Correlation Between Federated Government and Federated Hermes

Can any of the company-specific risk be diversified away by investing in both Federated Government 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 Government 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 Government Income and Federated Hermes Emerging, you can compare the effects of market volatilities on Federated Government 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 Government with a short position of Federated Hermes. Check out your portfolio center. Please also check ongoing floating volatility patterns of Federated Government and Federated Hermes.

Diversification Opportunities for Federated Government and Federated Hermes

0.53

Correlation Coefficient

Federated Government  Federated Hermes

Very weak diversification

The 3 months correlation between Federated and Federated is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Federated Government 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 Government 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 Government 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 Government i.e., Federated Government and Federated Hermes go up and down completely randomly.

Pair Corralation between Federated Government and Federated Hermes

Assuming the 90 days horizon Federated Government Income is expected to generate 0.43 times more return on investment than Federated Hermes. However, Federated Government Income is 2.32 times less risky than Federated Hermes. It trades about -0.05 of its potential returns per unit of risk. Federated Hermes Emerging is currently generating about -0.2 per unit of risk. If you would invest  880.00  in Federated Government Income on October 7, 2024 and sell it today you would lose (6.00) from holding Federated Government Income or give up 0.68% of portfolio value over 90 days.

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

Federated Government Income  vs.  Federated Hermes Emerging

Federated Government

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Federated Government Income has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Federated Government 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 latest weak performance, the Fund's technical and fundamental 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 Government and Federated Hermes

The main advantage of trading using opposite Federated Government and Federated Hermes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Federated Government 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 Government 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.