Correlation Between Federated Municipal and Federated Emerging

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

Diversification Opportunities for Federated Municipal and Federated Emerging

0.41

Correlation Coefficient

Federated Municipal  Federated Emerging

Very weak diversification

The 3 months correlation between Federated and Federated is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Federated Municipal Ultrashort and Federated Emerging Market in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federated Emerging Market 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 Federated Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federated Emerging Market has no effect on the direction of Federated Municipal i.e., Federated Municipal and Federated Emerging go up and down completely randomly.

Pair Corralation between Federated Municipal and Federated Emerging

Assuming the 90 days horizon Federated Municipal is expected to generate 3.24 times less return on investment than Federated Emerging. But when comparing it to its historical volatility, Federated Municipal Ultrashort is 4.96 times less risky than Federated Emerging. It trades about 0.22 of its potential returns per unit of risk. Federated Emerging Market is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  681.00  in Federated Emerging Market on October 8, 2024 and sell it today you would earn a total of  98.00  from holding Federated Emerging Market or generate 14.39% return on investment over 90 days.

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

Federated Municipal Ultrashort  vs.  Federated Emerging Market

Federated Municipal

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Federated Municipal Ultrashort are ranked lower than 3 (%) 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.

Federated Emerging Market

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Federated Emerging Market has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Federated Emerging 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 Federated Emerging

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

The idea behind Federated Municipal Ultrashort and Federated Emerging Market 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.