Correlation Between Federated Kaufmann and Federated Strategic

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

Diversification Opportunities for Federated Kaufmann and Federated Strategic

0.8

Correlation Coefficient

Federated Kaufmann  Federated Strategic

Very poor diversification

The 3 months correlation between Federated and Federated is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Federated Kaufmann Large and Federated Strategic Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federated Strategic Value 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 Federated Strategic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federated Strategic Value has no effect on the direction of Federated Kaufmann i.e., Federated Kaufmann and Federated Strategic go up and down completely randomly.

Pair Corralation between Federated Kaufmann and Federated Strategic

Assuming the 90 days horizon Federated Kaufmann Large is expected to generate 1.81 times more return on investment than Federated Strategic. However, Federated Kaufmann is 1.81 times more volatile than Federated Strategic Value. It trades about 0.33 of its potential returns per unit of risk. Federated Strategic Value is currently generating about 0.26 per unit of risk. If you would invest  2,382  in Federated Kaufmann Large on September 2, 2024 and sell it today you would earn a total of  151.00  from holding Federated Kaufmann Large or generate 6.34% return on investment over 90 days.

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

Federated Kaufmann Large  vs.  Federated Strategic Value

Federated Kaufmann Large

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Federated Kaufmann Large are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Federated Kaufmann may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Federated Strategic Value

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Federated Strategic Value are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Federated Strategic 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 Kaufmann and Federated Strategic

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

The idea behind Federated Kaufmann Large and Federated Strategic Value 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.