Correlation Between Federated Max-cap and Limited Term

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

By analyzing existing cross correlation between Federated Max Cap Index and Limited Term Tax, you can compare the effects of market volatilities on Federated Max-cap and Limited Term 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 Max-cap with a short position of Limited Term. Check out your portfolio center. Please also check ongoing floating volatility patterns of Federated Max-cap and Limited Term.

Diversification Opportunities for Federated Max-cap and Limited Term

-0.25

Correlation Coefficient

Federated Max-cap  Limited Term

Very good diversification

The 3 months correlation between Federated and LIMITED is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Federated Max Cap Index and Limited Term Tax in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Limited Term Tax and Federated Max-cap 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 Max Cap Index are associated (or correlated) with Limited Term. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Limited Term Tax has no effect on the direction of Federated Max-cap i.e., Federated Max-cap and Limited Term go up and down completely randomly.

Pair Corralation between Federated Max-cap and Limited Term

Assuming the 90 days horizon Federated Max Cap Index is expected to under-perform the Limited Term. In addition to that, Federated Max-cap is 7.35 times more volatile than Limited Term Tax. It trades about -0.09 of its total potential returns per unit of risk. Limited Term Tax is currently generating about 0.07 per unit of volatility. If you would invest  1,519  in Limited Term Tax on December 30, 2024 and sell it today you would earn a total of  9.00  from holding Limited Term Tax or generate 0.59% return on investment over 90 days.

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

Federated Max Cap Index  vs.  Limited Term Tax

Federated Max Cap

Risk-Adjusted Performance

Very Weak

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

Limited Term Tax

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Limited Term Tax are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Limited Term 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 Max-cap and Limited Term

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

The idea behind Federated Max Cap Index and Limited Term Tax 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.