Correlation Between Federated Bond and Small Midcap
Can any of the company-specific risk be diversified away by investing in both Federated Bond and Small Midcap 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 Bond and Small Midcap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Federated Bond Fund and Small Midcap Dividend Income, you can compare the effects of market volatilities on Federated Bond and Small Midcap 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 Bond with a short position of Small Midcap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Federated Bond and Small Midcap.
Diversification Opportunities for Federated Bond and Small Midcap
-0.52 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Federated and Small is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Federated Bond Fund and Small Midcap Dividend Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Midcap Dividend and Federated Bond 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 Bond Fund are associated (or correlated) with Small Midcap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Midcap Dividend has no effect on the direction of Federated Bond i.e., Federated Bond and Small Midcap go up and down completely randomly.
Pair Corralation between Federated Bond and Small Midcap
Assuming the 90 days horizon Federated Bond is expected to generate 31.12 times less return on investment than Small Midcap. But when comparing it to its historical volatility, Federated Bond Fund is 3.45 times less risky than Small Midcap. It trades about 0.01 of its potential returns per unit of risk. Small Midcap Dividend Income is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 1,930 in Small Midcap Dividend Income on September 12, 2024 and sell it today you would earn a total of 79.00 from holding Small Midcap Dividend Income or generate 4.09% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Federated Bond Fund vs. Small Midcap Dividend Income
Performance |
| Timeline |
| Federated Bond |
| Small Midcap Dividend |
Federated Bond and Small Midcap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Federated Bond and Small Midcap
The main advantage of trading using opposite Federated Bond and Small Midcap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Federated Bond position performs unexpectedly, Small Midcap 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 Small Midcap will offset losses from the drop in Small Midcap's long position.The idea behind Federated Bond Fund and Small Midcap Dividend 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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