Correlation Between International Business and Federated Municipal

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

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

Diversification Opportunities for International Business and Federated Municipal

0.55

Correlation Coefficient

International Business  Federated Municipal

Very weak diversification

The 3 months correlation between International and Federated is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding International Business Machine and Federated Municipal Ultrashort in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federated Municipal and International Business 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 International Business Machines are associated (or correlated) with Federated Municipal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federated Municipal has no effect on the direction of International Business i.e., International Business and Federated Municipal go up and down completely randomly.

Pair Corralation between International Business and Federated Municipal

Considering the 90-day investment horizon International Business Machines is expected to under-perform the Federated Municipal. In addition to that, International Business is 25.06 times more volatile than Federated Municipal Ultrashort. It trades about -0.21 of its total potential returns per unit of risk. Federated Municipal Ultrashort is currently generating about -0.18 per unit of volatility. If you would invest  1,002  in Federated Municipal Ultrashort on October 5, 2024 and sell it today you would lose (2.00) from holding Federated Municipal Ultrashort or give up 0.2% of portfolio value over 90 days.

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

International Business Machine  vs.  Federated Municipal Ultrashort

International Business

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days International Business Machines has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental drivers, International Business is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Federated Municipal

Risk-Adjusted Performance

3 of 100

Weak

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.

Pair Trading with International Business and Federated Municipal

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

The idea behind International Business Machines and Federated Municipal Ultrashort 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.