Correlation Between Federated Municipal and T Rowe

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

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

Diversification Opportunities for Federated Municipal and T Rowe

-0.14

Correlation Coefficient

Federated Municipal  T Rowe

Good diversification

The 3 months correlation between Federated and TRBCX is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding Federated Municipal High and T Rowe Price in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on T Rowe Price and Federated Municipal 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 Municipal High are associated (or correlated) with T Rowe. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of T Rowe Price has no effect on the direction of Federated Municipal i.e., Federated Municipal and T Rowe go up and down completely randomly.

Pair Corralation between Federated Municipal and T Rowe

Assuming the 90 days horizon Federated Municipal High is expected to generate 0.15 times more return on investment than T Rowe. However, Federated Municipal High is 6.62 times less risky than T Rowe. It trades about 0.05 of its potential returns per unit of risk. T Rowe Price is currently generating about -0.11 per unit of risk. If you would invest  803.00  in Federated Municipal High on December 22, 2024 and sell it today you would earn a total of  5.00  from holding Federated Municipal High or generate 0.62% return on investment over 90 days.

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

Federated Municipal High  vs.  T Rowe Price

Federated Municipal High

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Federated Municipal High are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Federated Municipal is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

T Rowe Price

Risk-Adjusted Performance

Very Weak

Over the last 90 days T Rowe Price has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's 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 Municipal and T Rowe

The main advantage of trading using opposite Federated Municipal and T Rowe positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Federated Municipal position performs unexpectedly, T Rowe 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 T Rowe will offset losses from the drop in T Rowe's long position.

The idea behind Federated Municipal High and T Rowe Price 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.