Correlation Between Federated Municipal and Morningstar Defensive

Can any of the company-specific risk be diversified away by investing in both Federated Municipal and Morningstar Defensive 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 Municipal and Morningstar Defensive into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Federated Municipal High and Morningstar Defensive Bond, you can compare the effects of market volatilities on Federated Municipal and Morningstar Defensive 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 Municipal with a short position of Morningstar Defensive. Check out your portfolio center. Please also check ongoing floating volatility patterns of Federated Municipal and Morningstar Defensive.

Diversification Opportunities for Federated Municipal and Morningstar Defensive

0.89

Correlation Coefficient

Federated Municipal  Morningstar Defensive

Very poor diversification

The 3 months correlation between FEDERATED and Morningstar is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Federated Municipal High and Morningstar Defensive Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Morningstar Defensive and Federated Municipal 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 Municipal High are associated (or correlated) with Morningstar Defensive. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Morningstar Defensive has no effect on the direction of Federated Municipal i.e., Federated Municipal and Morningstar Defensive go up and down completely randomly.

Pair Corralation between Federated Municipal and Morningstar Defensive

Assuming the 90 days horizon Federated Municipal High is expected to generate 1.71 times more return on investment than Morningstar Defensive. However, Federated Municipal is 1.71 times more volatile than Morningstar Defensive Bond. It trades about 0.41 of its potential returns per unit of risk. Morningstar Defensive Bond is currently generating about 0.15 per unit of risk. If you would invest  767.00  in Federated Municipal High on September 2, 2025 and sell it today you would earn a total of  38.00  from holding Federated Municipal High or generate 4.95% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

Federated Municipal High  vs.  Morningstar Defensive Bond

Federated Municipal High

Risk-Adjusted Performance

High

Compared to the overall equity markets, risk-adjusted returns on investments in Federated Municipal High are ranked lower than 32 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Federated Municipal is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Morningstar Defensive

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Morningstar Defensive Bond are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental drivers, Morningstar Defensive is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Federated Municipal and Morningstar Defensive

The main advantage of trading using opposite Federated Municipal and Morningstar Defensive positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Federated Municipal position performs unexpectedly, Morningstar Defensive 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 Morningstar Defensive will offset losses from the drop in Morningstar Defensive's long position.

The idea behind Federated Municipal High and Morningstar Defensive Bond 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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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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.