Correlation Between Federated Government and Multimanager Lifestyle
Can any of the company-specific risk be diversified away by investing in both Federated Government and Multimanager Lifestyle 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 Government and Multimanager Lifestyle into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Federated Government Income and Multimanager Lifestyle Growth, you can compare the effects of market volatilities on Federated Government and Multimanager Lifestyle 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 Government with a short position of Multimanager Lifestyle. Check out your portfolio center. Please also check ongoing floating volatility patterns of Federated Government and Multimanager Lifestyle.
Diversification Opportunities for Federated Government and Multimanager Lifestyle
0.84 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Federated and Multimanager is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Federated Government Income and Multimanager Lifestyle Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Multimanager Lifestyle and Federated Government 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 Government Income are associated (or correlated) with Multimanager Lifestyle. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Multimanager Lifestyle has no effect on the direction of Federated Government i.e., Federated Government and Multimanager Lifestyle go up and down completely randomly.
Pair Corralation between Federated Government and Multimanager Lifestyle
Assuming the 90 days horizon Federated Government Income is expected to generate 0.57 times more return on investment than Multimanager Lifestyle. However, Federated Government Income is 1.75 times less risky than Multimanager Lifestyle. It trades about 0.23 of its potential returns per unit of risk. Multimanager Lifestyle Growth is currently generating about -0.03 per unit of risk. If you would invest 872.00 in Federated Government Income on November 25, 2024 and sell it today you would earn a total of 13.00 from holding Federated Government Income or generate 1.49% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Strong |
Accuracy | 100.0% |
Values | Daily Returns |
Federated Government Income vs. Multimanager Lifestyle Growth
Performance |
Timeline |
Federated Government |
Multimanager Lifestyle |
Federated Government and Multimanager Lifestyle Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Federated Government and Multimanager Lifestyle
The main advantage of trading using opposite Federated Government and Multimanager Lifestyle positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Federated Government position performs unexpectedly, Multimanager Lifestyle 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 Multimanager Lifestyle will offset losses from the drop in Multimanager Lifestyle's long position.The idea behind Federated Government Income and Multimanager Lifestyle Growth 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.
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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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