Correlation Between Federated Premier and New Mountain

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

By analyzing existing cross correlation between Federated Premier Municipal and New Mountain Finance, you can compare the effects of market volatilities on Federated Premier and New Mountain 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 Premier with a short position of New Mountain. Check out your portfolio center. Please also check ongoing floating volatility patterns of Federated Premier and New Mountain.

Diversification Opportunities for Federated Premier and New Mountain

0.61

Correlation Coefficient

Federated Premier  New Mountain

Poor diversification

The 3 months correlation between Federated and New is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Federated Premier Municipal and New Mountain Finance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New Mountain Finance and Federated Premier 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 Premier Municipal are associated (or correlated) with New Mountain. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New Mountain Finance has no effect on the direction of Federated Premier i.e., Federated Premier and New Mountain go up and down completely randomly.

Pair Corralation between Federated Premier and New Mountain

Considering the 90-day investment horizon Federated Premier Municipal is expected to under-perform the New Mountain. But the fund apears to be less risky and, when comparing its historical volatility, Federated Premier Municipal is 1.39 times less risky than New Mountain. The fund trades about -0.14 of its potential returns per unit of risk. The New Mountain Finance is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  1,199  in New Mountain Finance on September 3, 2024 and sell it today you would lose (5.00) from holding New Mountain Finance or give up 0.42% of portfolio value over 90 days.

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

Federated Premier Municipal  vs.  New Mountain Finance

Federated Premier

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Federated Premier Municipal has generated negative risk-adjusted returns adding no value to fund investors. In spite of very healthy primary indicators, Federated Premier is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

New Mountain Finance

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days New Mountain Finance has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, New Mountain is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Federated Premier and New Mountain

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

The idea behind Federated Premier Municipal and New Mountain Finance 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.