Correlation Between Morningstar Defensive and Federated Short-intermedia

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

By analyzing existing cross correlation between Morningstar Defensive Bond and Federated Short Intermediate Duration, you can compare the effects of market volatilities on Morningstar Defensive and Federated Short-intermedia 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 Morningstar Defensive with a short position of Federated Short-intermedia. Check out your portfolio center. Please also check ongoing floating volatility patterns of Morningstar Defensive and Federated Short-intermedia.

Diversification Opportunities for Morningstar Defensive and Federated Short-intermedia

0.37

Correlation Coefficient

Morningstar Defensive  Federated Short-intermedia

Weak diversification

The 3 months correlation between Morningstar and Federated is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Morningstar Defensive Bond and Federated Short Intermediate D in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federated Short-intermedia and Morningstar Defensive 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 Morningstar Defensive Bond are associated (or correlated) with Federated Short-intermedia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federated Short-intermedia has no effect on the direction of Morningstar Defensive i.e., Morningstar Defensive and Federated Short-intermedia go up and down completely randomly.

Pair Corralation between Morningstar Defensive and Federated Short-intermedia

Assuming the 90 days horizon Morningstar Defensive Bond is expected to under-perform the Federated Short-intermedia. But the mutual fund apears to be less risky and, when comparing its historical volatility, Morningstar Defensive Bond is 1.03 times less risky than Federated Short-intermedia. The mutual fund trades about -0.09 of its potential returns per unit of risk. The Federated Short Intermediate Duration is currently generating about -0.08 of returns per unit of risk over similar time horizon. If you would invest  1,004  in Federated Short Intermediate Duration on October 7, 2024 and sell it today you would lose (7.00) from holding Federated Short Intermediate Duration or give up 0.7% of portfolio value over 90 days.

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

Morningstar Defensive Bond  vs.  Federated Short Intermediate D

Morningstar Defensive

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Morningstar Defensive Bond has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental drivers, Morningstar Defensive is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Federated Short-intermedia

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Federated Short Intermediate Duration has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Federated Short-intermedia is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Morningstar Defensive and Federated Short-intermedia

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

The idea behind Morningstar Defensive Bond and Federated Short Intermediate Duration 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.