Correlation Between TARGET and Federal National

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

By analyzing existing cross correlation between TARGET P 7 and Federal National Mortgage, you can compare the effects of market volatilities on TARGET and Federal National 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 TARGET with a short position of Federal National. Check out your portfolio center. Please also check ongoing floating volatility patterns of TARGET and Federal National.

Diversification Opportunities for TARGET and Federal National

0.28

Correlation Coefficient

TARGET  Federal National

Modest diversification

The 3 months correlation between TARGET and Federal is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding TARGET P 7 and Federal National Mortgage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federal National Mortgage and TARGET 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 TARGET P 7 are associated (or correlated) with Federal National. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federal National Mortgage has no effect on the direction of TARGET i.e., TARGET and Federal National go up and down completely randomly.

Pair Corralation between TARGET and Federal National

Assuming the 90 days trading horizon TARGET is expected to generate 8.64 times less return on investment than Federal National. But when comparing it to its historical volatility, TARGET P 7 is 4.67 times less risky than Federal National. It trades about 0.15 of its potential returns per unit of risk. Federal National Mortgage is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest  152.00  in Federal National Mortgage on October 24, 2024 and sell it today you would earn a total of  539.00  from holding Federal National Mortgage or generate 354.61% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	44.07%
Values	Daily Returns

TARGET P 7  vs.  Federal National Mortgage

TARGET P 7

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in TARGET P 7 are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, TARGET sustained solid returns over the last few months and may actually be approaching a breakup point.

Federal National Mortgage

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Federal National Mortgage are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady primary indicators, Federal National sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with TARGET and Federal National

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

The idea behind TARGET P 7 and Federal National Mortgage 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.