Correlation Between DWS Municipal and Federated Premier

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

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

Diversification Opportunities for DWS Municipal and Federated Premier

0.09

Correlation Coefficient

DWS Municipal  Federated Premier

Significant diversification

The 3 months correlation between DWS and Federated is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding DWS Municipal Income and Federated Premier Municipal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federated Premier and DWS Municipal 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 DWS Municipal Income are associated (or correlated) with Federated Premier. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federated Premier has no effect on the direction of DWS Municipal i.e., DWS Municipal and Federated Premier go up and down completely randomly.

Pair Corralation between DWS Municipal and Federated Premier

Considering the 90-day investment horizon DWS Municipal Income is expected to generate 0.89 times more return on investment than Federated Premier. However, DWS Municipal Income is 1.12 times less risky than Federated Premier. It trades about 0.29 of its potential returns per unit of risk. Federated Premier Municipal is currently generating about 0.02 per unit of risk. If you would invest  963.00  in DWS Municipal Income on August 31, 2024 and sell it today you would earn a total of  37.00  from holding DWS Municipal Income or generate 3.84% return on investment over 90 days.

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

DWS Municipal Income  vs.  Federated Premier Municipal

DWS Municipal Income

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in DWS Municipal Income are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, DWS Municipal is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Federated Premier

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Federated Premier Municipal has generated negative risk-adjusted returns adding no value to fund investors. In spite of very healthy primary indicators, Federated Premier is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with DWS Municipal and Federated Premier

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

The idea behind DWS Municipal Income and Federated Premier Municipal 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.