Correlation Between Federal National and Global Partners

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

Diversification Opportunities for Federal National and Global Partners

0.88

Correlation Coefficient

Federal National  Global Partners

Very poor diversification

The 3 months correlation between Federal and Global is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Federal National Mortgage and Global Partners LP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Partners LP 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 Global Partners. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Partners LP has no effect on the direction of Federal National i.e., Federal National and Global Partners go up and down completely randomly.

Pair Corralation between Federal National and Global Partners

Assuming the 90 days horizon Federal National Mortgage is expected to generate 14.61 times more return on investment than Global Partners. However, Federal National is 14.61 times more volatile than Global Partners LP. It trades about 0.08 of its potential returns per unit of risk. Global Partners LP is currently generating about 0.11 per unit of risk. If you would invest  555,000  in Federal National Mortgage on October 4, 2024 and sell it today you would earn a total of  2,845,000  from holding Federal National Mortgage or generate 512.61% return on investment over 90 days.

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

Federal National Mortgage  vs.  Global Partners LP

Federal National Mortgage

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Federal National Mortgage are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting technical and fundamental indicators, Federal National displayed solid returns over the last few months and may actually be approaching a breakup point.

Global Partners LP

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Global Partners LP are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Global Partners is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Federal National and Global Partners

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

The idea behind Federal National Mortgage and Global Partners LP 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.