Correlation Between Federated Equity and Federated Global

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

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

Diversification Opportunities for Federated Equity and Federated Global

0.51

Correlation Coefficient

Federated Equity  Federated Global

Very weak diversification

The 3 months correlation between Federated and Federated is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Federated Equity Income and Federated Global Allocation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federated Global All and Federated Equity 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 Equity Income are associated (or correlated) with Federated Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federated Global All has no effect on the direction of Federated Equity i.e., Federated Equity and Federated Global go up and down completely randomly.

Pair Corralation between Federated Equity and Federated Global

Assuming the 90 days horizon Federated Equity Income is expected to under-perform the Federated Global. In addition to that, Federated Equity is 4.17 times more volatile than Federated Global Allocation. It trades about -0.31 of its total potential returns per unit of risk. Federated Global Allocation is currently generating about -0.36 per unit of volatility. If you would invest  2,116  in Federated Global Allocation on October 6, 2024 and sell it today you would lose (91.00) from holding Federated Global Allocation or give up 4.3% of portfolio value over 90 days.

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

Federated Equity Income  vs.  Federated Global Allocation

Federated Equity Income

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Federated Equity Income has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's technical and fundamental indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Federated Global All

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Federated Global Allocation has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Federated Global 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 Equity and Federated Global

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

The idea behind Federated Equity Income and Federated Global Allocation 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.