Correlation Between Federated Strategic and Federated Municipal

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

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

Diversification Opportunities for Federated Strategic and Federated Municipal

0.72

Correlation Coefficient

Federated Strategic  Federated Municipal

Poor diversification

The 3 months correlation between Federated and Federated is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Federated Strategic Income and Federated Municipal High in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federated Municipal High and Federated Strategic 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 Strategic Income 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 High has no effect on the direction of Federated Strategic i.e., Federated Strategic and Federated Municipal go up and down completely randomly.

Pair Corralation between Federated Strategic and Federated Municipal

Assuming the 90 days horizon Federated Strategic Income is expected to under-perform the Federated Municipal. But the mutual fund apears to be less risky and, when comparing its historical volatility, Federated Strategic Income is 1.08 times less risky than Federated Municipal. The mutual fund trades about -0.11 of its potential returns per unit of risk. The Federated Municipal High is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  816.00  in Federated Municipal High on October 6, 2024 and sell it today you would lose (3.00) from holding Federated Municipal High or give up 0.37% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	97.62%
Values	Daily Returns

Federated Strategic Income  vs.  Federated Municipal High

Federated Strategic

Risk-Adjusted Performance

0 of 100

Very Weak

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

Federated Municipal High

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Federated Municipal High has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental 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 Federated Strategic and Federated Municipal

The main advantage of trading using opposite Federated Strategic and Federated Municipal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Federated Strategic 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 Federated Strategic Income and Federated Municipal High 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.