Correlation Between Federal National and Federal Natl

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

By analyzing existing cross correlation between Federal National Mortgage and Federal Natl Mtg, you can compare the effects of market volatilities on Federal National and Federal Natl 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 Federal National with a short position of Federal Natl. Check out your portfolio center. Please also check ongoing floating volatility patterns of Federal National and Federal Natl.

Diversification Opportunities for Federal National and Federal Natl

0.99

Correlation Coefficient

Federal National  Federal Natl

No risk reduction

The 3 months correlation between Federal and Federal is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Federal National Mortgage and Federal Natl Mtg in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federal Natl Mtg and Federal National 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 Federal National Mortgage are associated (or correlated) with Federal Natl. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federal Natl Mtg has no effect on the direction of Federal National i.e., Federal National and Federal Natl go up and down completely randomly.

Pair Corralation between Federal National and Federal Natl

Assuming the 90 days horizon Federal National Mortgage is expected to generate 1.04 times more return on investment than Federal Natl. However, Federal National is 1.04 times more volatile than Federal Natl Mtg. It trades about 0.2 of its potential returns per unit of risk. Federal Natl Mtg is currently generating about 0.2 per unit of risk. If you would invest  342.00  in Federal National Mortgage on September 13, 2024 and sell it today you would earn a total of  591.00  from holding Federal National Mortgage or generate 172.81% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	96.92%
Values	Daily Returns

Federal National Mortgage  vs.  Federal Natl Mtg

Federal National Mortgage

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Federal National Mortgage are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Even with relatively inconsistent basic indicators, Federal National revealed solid returns over the last few months and may actually be approaching a breakup point.

Federal Natl Mtg

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Federal Natl Mtg are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite fairly conflicting basic indicators, Federal Natl demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Federal National and Federal Natl

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

The idea behind Federal National Mortgage and Federal Natl Mtg 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.