Correlation Between Georgia Tax-free and Federated Equity

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

By analyzing existing cross correlation between Georgia Tax Free Bond and Federated Equity Income, you can compare the effects of market volatilities on Georgia Tax-free and Federated Equity 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 Georgia Tax-free with a short position of Federated Equity. Check out your portfolio center. Please also check ongoing floating volatility patterns of Georgia Tax-free and Federated Equity.

Diversification Opportunities for Georgia Tax-free and Federated Equity

0.21

Correlation Coefficient

Georgia Tax-free  Federated Equity

Modest diversification

The 3 months correlation between Georgia and Federated is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Georgia Tax Free Bond and Federated Equity Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federated Equity Income and Georgia Tax-free 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 Georgia Tax Free Bond are associated (or correlated) with Federated Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federated Equity Income has no effect on the direction of Georgia Tax-free i.e., Georgia Tax-free and Federated Equity go up and down completely randomly.

Pair Corralation between Georgia Tax-free and Federated Equity

Assuming the 90 days horizon Georgia Tax Free Bond is expected to generate 0.11 times more return on investment than Federated Equity. However, Georgia Tax Free Bond is 9.13 times less risky than Federated Equity. It trades about -0.34 of its potential returns per unit of risk. Federated Equity Income is currently generating about -0.3 per unit of risk. If you would invest  1,110  in Georgia Tax Free Bond on October 9, 2024 and sell it today you would lose (20.00) from holding Georgia Tax Free Bond or give up 1.8% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.0%
Values	Daily Returns

Georgia Tax Free Bond  vs.  Federated Equity Income

Georgia Tax Free

Risk-Adjusted Performance

0 of 100

Very Weak

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

Federated Equity Income

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Federated Equity Income 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 technical and fundamental indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Georgia Tax-free and Federated Equity

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

The idea behind Georgia Tax Free Bond and Federated Equity Income 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.