Correlation Between Federated Emerging and Federated High
Can any of the company-specific risk be diversified away by investing in both Federated Emerging and Federated High 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 Emerging and Federated High into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Federated Emerging Market and Federated High Income, you can compare the effects of market volatilities on Federated Emerging and Federated High 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 Emerging with a short position of Federated High. Check out your portfolio center. Please also check ongoing floating volatility patterns of Federated Emerging and Federated High.
Diversification Opportunities for Federated Emerging and Federated High
0.59 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Federated and Federated is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Federated Emerging Market and Federated High Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federated High Income and Federated Emerging 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 Emerging Market are associated (or correlated) with Federated High. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federated High Income has no effect on the direction of Federated Emerging i.e., Federated Emerging and Federated High go up and down completely randomly.
Pair Corralation between Federated Emerging and Federated High
Assuming the 90 days horizon Federated Emerging is expected to generate 1.18 times less return on investment than Federated High. In addition to that, Federated Emerging is 1.81 times more volatile than Federated High Income. It trades about 0.13 of its total potential returns per unit of risk. Federated High Income is currently generating about 0.27 per unit of volatility. If you would invest 648.00 in Federated High Income on September 1, 2024 and sell it today you would earn a total of 36.00 from holding Federated High Income or generate 5.56% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 99.21% |
| Values | Daily Returns |
Federated Emerging Market vs. Federated High Income
Performance |
| Timeline |
| Federated Emerging Market |
| Federated High Income |
Federated Emerging and Federated High Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Federated Emerging and Federated High
The main advantage of trading using opposite Federated Emerging and Federated High positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Federated Emerging position performs unexpectedly, Federated High 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 High will offset losses from the drop in Federated High's long position.The idea behind Federated Emerging Market and Federated High 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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Check out your portfolio center.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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.
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