Correlation Between Federal Home and Federal Natl

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

By analyzing existing cross correlation between Federal Home Loan and Federal Natl Mtg, you can compare the effects of market volatilities on Federal Home and Federal Natl 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 Federal Home with a short position of Federal Natl. Check out your portfolio center. Please also check ongoing floating volatility patterns of Federal Home and Federal Natl.

Diversification Opportunities for Federal Home and Federal Natl

0.87

Correlation Coefficient

Federal Home  Federal Natl

Very poor diversification

The 3 months correlation between Federal and Federal is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Federal Home Loan and Federal Natl Mtg in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federal Natl Mtg and Federal Home 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 Federal Home Loan are associated (or correlated) with Federal Natl. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federal Natl Mtg has no effect on the direction of Federal Home i.e., Federal Home and Federal Natl go up and down completely randomly.

Pair Corralation between Federal Home and Federal Natl

Assuming the 90 days horizon Federal Home Loan is expected to under-perform the Federal Natl. In addition to that, Federal Home is 1.3 times more volatile than Federal Natl Mtg. It trades about -0.02 of its total potential returns per unit of risk. Federal Natl Mtg is currently generating about 0.03 per unit of volatility. If you would invest  890.00  in Federal Natl Mtg on December 4, 2024 and sell it today you would earn a total of  8.00  from holding Federal Natl Mtg or generate 0.9% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	90.91%
Values	Daily Returns

Federal Home Loan  vs.  Federal Natl Mtg

Federal Home Loan

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Federal Home Loan are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent forward-looking signals, Federal Home is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Federal Natl Mtg

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Federal Natl Mtg are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite fairly sluggish basic indicators, Federal Natl may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Federal Home and Federal Natl

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

The idea behind Federal Home Loan and Federal Natl Mtg 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.