Correlation Between Federal Natl and Federal Home
Can any of the company-specific risk be diversified away by investing in both Federal Natl and Federal Home 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 Federal Natl and Federal Home into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Federal Natl Pfd and Federal Home Loan, you can compare the effects of market volatilities on Federal Natl and Federal Home 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 Federal Natl with a short position of Federal Home. Check out your portfolio center. Please also check ongoing floating volatility patterns of Federal Natl and Federal Home.
Diversification Opportunities for Federal Natl and Federal Home
1.0 | Correlation Coefficient |
No risk reduction
The 3 months correlation between Federal and Federal is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding Federal Natl Pfd and Federal Home Loan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federal Home Loan and Federal Natl 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 Federal Natl Pfd are associated (or correlated) with Federal Home. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federal Home Loan has no effect on the direction of Federal Natl i.e., Federal Natl and Federal Home go up and down completely randomly.
Pair Corralation between Federal Natl and Federal Home
Assuming the 90 days horizon Federal Natl Pfd is expected to generate 1.07 times more return on investment than Federal Home. However, Federal Natl is 1.07 times more volatile than Federal Home Loan. It trades about 0.2 of its potential returns per unit of risk. Federal Home Loan is currently generating about 0.19 per unit of risk. If you would invest 1,521 in Federal Natl Pfd on September 13, 2024 and sell it today you would earn a total of 183.00 from holding Federal Natl Pfd or generate 12.03% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 95.45% |
| Values | Daily Returns |
Federal Natl Pfd vs. Federal Home Loan
Performance |
| Timeline |
| Federal Natl Pfd |
| Federal Home Loan |
Federal Natl and Federal Home Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Federal Natl and Federal Home
The main advantage of trading using opposite Federal Natl and Federal Home positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Federal Natl position performs unexpectedly, Federal Home 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 Home will offset losses from the drop in Federal Home's long position.| Federal Natl vs. Federal Home Loan | Federal Natl vs. Federal Home Loan | Federal Natl vs. Federal National Mortgage | Federal Natl vs. Federal Home Loan |
| Federal Home vs. Federal Home Loan | Federal Home vs. Federal Home Loan | Federal Home vs. Federal National Mortgage | Federal Home vs. Federal Home Loan |
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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.
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