Correlation Between Stepstone and Federated Premier

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

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

Diversification Opportunities for Stepstone and Federated Premier

0.02

Correlation Coefficient

Stepstone  Federated Premier

Significant diversification

The 3 months correlation between Stepstone and Federated is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Stepstone Group and Federated Premier Municipal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federated Premier and Stepstone 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 Stepstone Group are associated (or correlated) with Federated Premier. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federated Premier has no effect on the direction of Stepstone i.e., Stepstone and Federated Premier go up and down completely randomly.

Pair Corralation between Stepstone and Federated Premier

Given the investment horizon of 90 days Stepstone Group is expected to generate 4.03 times more return on investment than Federated Premier. However, Stepstone is 4.03 times more volatile than Federated Premier Municipal. It trades about 0.01 of its potential returns per unit of risk. Federated Premier Municipal is currently generating about -0.05 per unit of risk. If you would invest  6,170  in Stepstone Group on October 24, 2024 and sell it today you would lose (13.00) from holding Stepstone Group or give up 0.21% of portfolio value over 90 days.

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

Stepstone Group  vs.  Federated Premier Municipal

Stepstone Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Stepstone Group has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable technical and fundamental indicators, Stepstone is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Federated Premier

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Stepstone and Federated Premier

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

The idea behind Stepstone Group and Federated Premier Municipal 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.