Correlation Between Microsoft and Federated Municipal

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

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

Diversification Opportunities for Microsoft and Federated Municipal

0.5

Correlation Coefficient

Microsoft  Federated Municipal

Very weak diversification

The 3 months correlation between Microsoft and Federated is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Federated Municipal Ultrashort in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federated Municipal and Microsoft 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 Microsoft 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 Microsoft i.e., Microsoft and Federated Municipal go up and down completely randomly.

Pair Corralation between Microsoft and Federated Municipal

Given the investment horizon of 90 days Microsoft is expected to under-perform the Federated Municipal. In addition to that, Microsoft is 20.08 times more volatile than Federated Municipal Ultrashort. It trades about -0.22 of its total potential returns per unit of risk. Federated Municipal Ultrashort is currently generating about -0.19 per unit of volatility. If you would invest  1,002  in Federated Municipal Ultrashort on October 8, 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	95.0%
Values	Daily Returns

Microsoft  vs.  Federated Municipal Ultrashort

Microsoft

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical and fundamental indicators, Microsoft is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Federated Municipal

Risk-Adjusted Performance

3 of 100

Insignificant

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 Microsoft and Federated Municipal

The main advantage of trading using opposite Microsoft and Federated Municipal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft 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 Microsoft 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.