Correlation Between Federated Gov and Federated Ultrashort

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

By analyzing existing cross correlation between Federated Gov Sec and Federated Ultrashort Bond, you can compare the effects of market volatilities on Federated Gov and Federated Ultrashort 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 Gov with a short position of Federated Ultrashort. Check out your portfolio center. Please also check ongoing floating volatility patterns of Federated Gov and Federated Ultrashort.

Diversification Opportunities for Federated Gov and Federated Ultrashort

0.02

Correlation Coefficient

Federated Gov  Federated Ultrashort

Significant diversification

The 3 months correlation between Federated and Federated is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Federated Gov Sec and Federated Ultrashort Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federated Ultrashort Bond and Federated Gov 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 Gov Sec are associated (or correlated) with Federated Ultrashort. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federated Ultrashort Bond has no effect on the direction of Federated Gov i.e., Federated Gov and Federated Ultrashort go up and down completely randomly.

Pair Corralation between Federated Gov and Federated Ultrashort

Assuming the 90 days horizon Federated Gov is expected to generate 1.74 times less return on investment than Federated Ultrashort. In addition to that, Federated Gov is 1.63 times more volatile than Federated Ultrashort Bond. It trades about 0.08 of its total potential returns per unit of risk. Federated Ultrashort Bond is currently generating about 0.22 per unit of volatility. If you would invest  835.00  in Federated Ultrashort Bond on October 4, 2024 and sell it today you would earn a total of  93.00  from holding Federated Ultrashort Bond or generate 11.14% return on investment over 90 days.

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

Federated Gov Sec  vs.  Federated Ultrashort Bond

Federated Gov Sec

Risk-Adjusted Performance

0 of 100

Very Weak

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

Federated Ultrashort Bond

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Federated Ultrashort Bond are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental drivers, Federated Ultrashort 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 Gov and Federated Ultrashort

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

The idea behind Federated Gov Sec and Federated Ultrashort Bond 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.