Correlation Between Federated Premier and Nuveen California

Can any of the company-specific risk be diversified away by investing in both Federated Premier and Nuveen California 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 Nuveen California 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 Nuveen California Select, you can compare the effects of market volatilities on Federated Premier and Nuveen California 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 Nuveen California. Check out your portfolio center. Please also check ongoing floating volatility patterns of Federated Premier and Nuveen California.

Diversification Opportunities for Federated Premier and Nuveen California

0.62

Correlation Coefficient

Federated Premier  Nuveen California

Poor diversification

The 3 months correlation between Federated and Nuveen is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Federated Premier Municipal and Nuveen California Select in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nuveen California Select 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 Nuveen California. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nuveen California Select has no effect on the direction of Federated Premier i.e., Federated Premier and Nuveen California go up and down completely randomly.

Pair Corralation between Federated Premier and Nuveen California

Considering the 90-day investment horizon Federated Premier is expected to generate 3.53 times less return on investment than Nuveen California. In addition to that, Federated Premier is 1.35 times more volatile than Nuveen California Select. It trades about 0.02 of its total potential returns per unit of risk. Nuveen California Select is currently generating about 0.08 per unit of volatility. If you would invest  1,285  in Nuveen California Select on December 29, 2024 and sell it today you would earn a total of  25.00  from holding Nuveen California Select or generate 1.95% return on investment over 90 days.

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

Federated Premier Municipal  vs.  Nuveen California Select

Federated Premier

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Federated Premier Municipal are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of very healthy primary indicators, Federated Premier is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Nuveen California Select

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Nuveen California Select are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Nuveen California is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Federated Premier and Nuveen California

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

The idea behind Federated Premier Municipal and Nuveen California Select 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.