Correlation Between Federated Pennsylvania and Multisector Bond
Can any of the company-specific risk be diversified away by investing in both Federated Pennsylvania and Multisector Bond 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 Pennsylvania and Multisector Bond into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Federated Pennsylvania Municipal and Multisector Bond Sma, you can compare the effects of market volatilities on Federated Pennsylvania and Multisector Bond 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 Pennsylvania with a short position of Multisector Bond. Check out your portfolio center. Please also check ongoing floating volatility patterns of Federated Pennsylvania and Multisector Bond.
Diversification Opportunities for Federated Pennsylvania and Multisector Bond
0.79 | Correlation Coefficient |
Poor diversification
The 3 months correlation between FEDERATED and Multisector is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Federated Pennsylvania Municip and Multisector Bond Sma in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Multisector Bond Sma and Federated Pennsylvania 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 Pennsylvania Municipal are associated (or correlated) with Multisector Bond. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Multisector Bond Sma has no effect on the direction of Federated Pennsylvania i.e., Federated Pennsylvania and Multisector Bond go up and down completely randomly.
Pair Corralation between Federated Pennsylvania and Multisector Bond
Assuming the 90 days horizon Federated Pennsylvania is expected to generate 2.23 times less return on investment than Multisector Bond. But when comparing it to its historical volatility, Federated Pennsylvania Municipal is 1.49 times less risky than Multisector Bond. It trades about 0.12 of its potential returns per unit of risk. Multisector Bond Sma is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest 1,286 in Multisector Bond Sma on September 3, 2024 and sell it today you would earn a total of 86.00 from holding Multisector Bond Sma or generate 6.69% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Federated Pennsylvania Municip vs. Multisector Bond Sma
Performance |
| Timeline |
| Federated Pennsylvania |
| Multisector Bond Sma |
Federated Pennsylvania and Multisector Bond Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Federated Pennsylvania and Multisector Bond
The main advantage of trading using opposite Federated Pennsylvania and Multisector Bond positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Federated Pennsylvania position performs unexpectedly, Multisector Bond 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 Multisector Bond will offset losses from the drop in Multisector Bond's long position.The idea behind Federated Pennsylvania Municipal and Multisector Bond Sma 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.
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