Correlation Between Federated Strategic and Federated Emerging

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

By analyzing existing cross correlation between Federated Strategic Value and Federated Emerging Market, you can compare the effects of market volatilities on Federated Strategic and Federated Emerging 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 Emerging. Check out your portfolio center. Please also check ongoing floating volatility patterns of Federated Strategic and Federated Emerging.

Diversification Opportunities for Federated Strategic and Federated Emerging

-0.01

Correlation Coefficient

Federated Strategic  Federated Emerging

Good diversification

The 3 months correlation between Federated and Federated is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding Federated Strategic Value and Federated Emerging Market in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federated Emerging Market 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 Value are associated (or correlated) with Federated Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federated Emerging Market has no effect on the direction of Federated Strategic i.e., Federated Strategic and Federated Emerging go up and down completely randomly.

Pair Corralation between Federated Strategic and Federated Emerging

Assuming the 90 days horizon Federated Strategic Value is expected to under-perform the Federated Emerging. In addition to that, Federated Strategic is 3.4 times more volatile than Federated Emerging Market. It trades about -0.52 of its total potential returns per unit of risk. Federated Emerging Market is currently generating about -0.11 per unit of volatility. If you would invest  789.00  in Federated Emerging Market on September 25, 2024 and sell it today you would lose (4.00) from holding Federated Emerging Market or give up 0.51% of portfolio value over 90 days.

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

Federated Strategic Value  vs.  Federated Emerging Market

Federated Strategic Value

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Federated Strategic Value has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong essential 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 Emerging Market

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Federated Emerging Market has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Federated Emerging 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 Emerging

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

The idea behind Federated Strategic Value and Federated Emerging Market 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.