Correlation Between Federal National and Federal Home
Can any of the company-specific risk be diversified away by investing in both Federal National 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 National 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 National Mortgage and Federal Home Loan, you can compare the effects of market volatilities on Federal National 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 National with a short position of Federal Home. Check out your portfolio center. Please also check ongoing floating volatility patterns of Federal National and Federal Home.
Diversification Opportunities for Federal National 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 National Mortgage 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 National 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 National Mortgage 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 National i.e., Federal National and Federal Home go up and down completely randomly.
Pair Corralation between Federal National and Federal Home
Assuming the 90 days horizon Federal National is expected to generate 1.05 times less return on investment than Federal Home. But when comparing it to its historical volatility, Federal National Mortgage is 1.09 times less risky than Federal Home. It trades about 0.26 of its potential returns per unit of risk. Federal Home Loan is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest 729.00 in Federal Home Loan on August 25, 2024 and sell it today you would earn a total of 741.00 from holding Federal Home Loan or generate 101.65% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Federal National Mortgage vs. Federal Home Loan
Performance |
| Timeline |
| Federal National Mortgage |
| Federal Home Loan |
Federal National and Federal Home Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Federal National and Federal Home
The main advantage of trading using opposite Federal National and Federal Home positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Federal National 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 National vs. Federal Home Loan | Federal National vs. Federal Hme 655 | Federal National vs. Federal National Mortgage | Federal National vs. Federal National Mortgage |
| Federal Home vs. Federal Home Loan | Federal Home vs. Federal Home Loan | Federal Home vs. Federal Home Loan | 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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