Correlation Between Federated Emerging and Federated Strategic
Can any of the company-specific risk be diversified away by investing in both Federated Emerging and Federated Strategic 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 Strategic 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 Strategic Income, you can compare the effects of market volatilities on Federated Emerging and Federated Strategic 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 Strategic. Check out your portfolio center. Please also check ongoing floating volatility patterns of Federated Emerging and Federated Strategic.
Diversification Opportunities for Federated Emerging and Federated Strategic
0.97 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Federated and Federated is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Federated Emerging Market and Federated Strategic Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federated Strategic 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 Strategic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federated Strategic has no effect on the direction of Federated Emerging i.e., Federated Emerging and Federated Strategic go up and down completely randomly.
Pair Corralation between Federated Emerging and Federated Strategic
Assuming the 90 days horizon Federated Emerging Market is expected to generate 1.18 times more return on investment than Federated Strategic. However, Federated Emerging is 1.18 times more volatile than Federated Strategic Income. It trades about 0.14 of its potential returns per unit of risk. Federated Strategic Income is currently generating about 0.16 per unit of risk. If you would invest 753.00 in Federated Emerging Market on August 29, 2024 and sell it today you would earn a total of 38.00 from holding Federated Emerging Market or generate 5.05% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Federated Emerging Market vs. Federated Strategic Income
Performance |
| Timeline |
| Federated Emerging Market |
| Federated Strategic |
Federated Emerging and Federated Strategic Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Federated Emerging and Federated Strategic
The main advantage of trading using opposite Federated Emerging and Federated Strategic positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Federated Emerging position performs unexpectedly, Federated Strategic 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 Strategic will offset losses from the drop in Federated Strategic's long position.The idea behind Federated Emerging Market and Federated Strategic 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.
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