Correlation Between Federated Municipal and Vanguard Intermediate

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

By analyzing existing cross correlation between Federated Municipal Ultrashort and Vanguard Intermediate Term Tax Exempt, you can compare the effects of market volatilities on Federated Municipal and Vanguard Intermediate 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 Vanguard Intermediate. Check out your portfolio center. Please also check ongoing floating volatility patterns of Federated Municipal and Vanguard Intermediate.

Diversification Opportunities for Federated Municipal and Vanguard Intermediate

0.66

Correlation Coefficient

Federated Municipal  Vanguard Intermediate

Poor diversification

The 3 months correlation between Federated and Vanguard is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Federated Municipal Ultrashort and Vanguard Intermediate Term Tax in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Intermediate 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 Ultrashort are associated (or correlated) with Vanguard Intermediate. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Intermediate has no effect on the direction of Federated Municipal i.e., Federated Municipal and Vanguard Intermediate go up and down completely randomly.

Pair Corralation between Federated Municipal and Vanguard Intermediate

Assuming the 90 days horizon Federated Municipal Ultrashort is expected to generate 0.26 times more return on investment than Vanguard Intermediate. However, Federated Municipal Ultrashort is 3.8 times less risky than Vanguard Intermediate. It trades about -0.18 of its potential returns per unit of risk. Vanguard Intermediate Term Tax Exempt is currently generating about -0.36 per unit of risk. If you would invest  1,002  in Federated Municipal Ultrashort on October 4, 2024 and sell it today you would lose (2.00) from holding Federated Municipal Ultrashort or give up 0.2% of portfolio value over 90 days.

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

Federated Municipal Ultrashort  vs.  Vanguard Intermediate Term Tax

Federated Municipal

Risk-Adjusted Performance

1 of 100

Weak

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

Vanguard Intermediate

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard Intermediate Term Tax Exempt has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Vanguard Intermediate is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Federated Municipal and Vanguard Intermediate

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

The idea behind Federated Municipal Ultrashort and Vanguard Intermediate Term Tax Exempt 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.