Correlation Between Federated Kaufmann and Schwab Small

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

By analyzing existing cross correlation between Federated Kaufmann Large and Schwab Small Cap Index, you can compare the effects of market volatilities on Federated Kaufmann and Schwab Small 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 Kaufmann with a short position of Schwab Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of Federated Kaufmann and Schwab Small.

Diversification Opportunities for Federated Kaufmann and Schwab Small

0.97

Correlation Coefficient

Federated Kaufmann  Schwab Small

Almost no diversification

The 3 months correlation between Federated and Schwab is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Federated Kaufmann Large and Schwab Small Cap Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schwab Small Cap and Federated Kaufmann 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 Kaufmann Large are associated (or correlated) with Schwab Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schwab Small Cap has no effect on the direction of Federated Kaufmann i.e., Federated Kaufmann and Schwab Small go up and down completely randomly.

Pair Corralation between Federated Kaufmann and Schwab Small

Assuming the 90 days horizon Federated Kaufmann Large is expected to under-perform the Schwab Small. In addition to that, Federated Kaufmann is 1.2 times more volatile than Schwab Small Cap Index. It trades about -0.09 of its total potential returns per unit of risk. Schwab Small Cap Index is currently generating about -0.11 per unit of volatility. If you would invest  3,581  in Schwab Small Cap Index on December 23, 2024 and sell it today you would lose (277.00) from holding Schwab Small Cap Index or give up 7.74% of portfolio value over 90 days.

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

Federated Kaufmann Large  vs.  Schwab Small Cap Index

Federated Kaufmann Large

Risk-Adjusted Performance

Very Weak

Over the last 90 days Federated Kaufmann Large has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Schwab Small Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Schwab Small Cap Index has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Federated Kaufmann and Schwab Small

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

The idea behind Federated Kaufmann Large and Schwab Small Cap Index 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.

Check out your portfolio center.

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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.