Correlation Between Inverse Sp and Federated Prudent

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

By analyzing existing cross correlation between Inverse Sp 500 and Federated Prudent Bear, you can compare the effects of market volatilities on Inverse Sp and Federated Prudent 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 Inverse Sp with a short position of Federated Prudent. Check out your portfolio center. Please also check ongoing floating volatility patterns of Inverse Sp and Federated Prudent.

Diversification Opportunities for Inverse Sp and Federated Prudent

0.22

Correlation Coefficient

Inverse Sp  Federated Prudent

Modest diversification

The 3 months correlation between Inverse and Federated is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Inverse Sp 500 and Federated Prudent Bear in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federated Prudent Bear and Inverse Sp 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 Inverse Sp 500 are associated (or correlated) with Federated Prudent. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federated Prudent Bear has no effect on the direction of Inverse Sp i.e., Inverse Sp and Federated Prudent go up and down completely randomly.

Pair Corralation between Inverse Sp and Federated Prudent

Assuming the 90 days horizon Inverse Sp 500 is expected to generate 86.85 times more return on investment than Federated Prudent. However, Inverse Sp is 86.85 times more volatile than Federated Prudent Bear. It trades about 0.17 of its potential returns per unit of risk. Federated Prudent Bear is currently generating about 0.07 per unit of risk. If you would invest  2,153  in Inverse Sp 500 on November 29, 2024 and sell it today you would earn a total of  8,910  from holding Inverse Sp 500 or generate 413.84% return on investment over 90 days.

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

Inverse Sp 500  vs.  Federated Prudent Bear

Inverse Sp 500

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Inverse Sp 500 are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Inverse Sp showed solid returns over the last few months and may actually be approaching a breakup point.

Federated Prudent Bear

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Federated Prudent Bear are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Federated Prudent is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Inverse Sp and Federated Prudent

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

The idea behind Inverse Sp 500 and Federated Prudent Bear 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.