Correlation Between Federated Ohio and Large Cap

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

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

Diversification Opportunities for Federated Ohio and Large Cap

0.63

Correlation Coefficient

Federated Ohio  Large Cap

Poor diversification

The 3 months correlation between Federated and Large is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Federated Ohio Municipal and Large Cap Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Large Cap Value and Federated Ohio 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 Ohio Municipal are associated (or correlated) with Large Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Large Cap Value has no effect on the direction of Federated Ohio i.e., Federated Ohio and Large Cap go up and down completely randomly.

Pair Corralation between Federated Ohio and Large Cap

Assuming the 90 days horizon Federated Ohio Municipal is expected to generate 0.09 times more return on investment than Large Cap. However, Federated Ohio Municipal is 10.72 times less risky than Large Cap. It trades about -0.01 of its potential returns per unit of risk. Large Cap Value is currently generating about -0.13 per unit of risk. If you would invest  1,045  in Federated Ohio Municipal on November 29, 2024 and sell it today you would lose (1.00) from holding Federated Ohio Municipal or give up 0.1% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.33%
Values	Daily Returns

Federated Ohio Municipal  vs.  Large Cap Value

Federated Ohio Municipal

Risk-Adjusted Performance

Very Weak

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

Large Cap Value

Risk-Adjusted Performance

Very Weak

Over the last 90 days Large Cap Value 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 fundamental indicators remain fairly strong which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Federated Ohio and Large Cap

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

The idea behind Federated Ohio Municipal and Large Cap 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.

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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.