Correlation Between Federated Municipal and The Short-term

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

By analyzing existing cross correlation between Federated Municipal Ultrashort and The Short Term Municipal, you can compare the effects of market volatilities on Federated Municipal and The Short-term 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 The Short-term. Check out your portfolio center. Please also check ongoing floating volatility patterns of Federated Municipal and The Short-term.

Diversification Opportunities for Federated Municipal and The Short-term

0.68

Correlation Coefficient

Federated Municipal  The Short-term

Poor diversification

The 3 months correlation between FEDERATED and The is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Federated Municipal Ultrashort and The Short Term Municipal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on The Short-term 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 Ultrashort are associated (or correlated) with The Short-term. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of The Short-term has no effect on the direction of Federated Municipal i.e., Federated Municipal and The Short-term go up and down completely randomly.

Pair Corralation between Federated Municipal and The Short-term

Assuming the 90 days horizon Federated Municipal Ultrashort is expected to generate 0.66 times more return on investment than The Short-term. However, Federated Municipal Ultrashort is 1.51 times less risky than The Short-term. It trades about 0.2 of its potential returns per unit of risk. The Short Term Municipal is currently generating about 0.06 per unit of risk. If you would invest  995.00  in Federated Municipal Ultrashort on January 8, 2025 and sell it today you would earn a total of  7.00  from holding Federated Municipal Ultrashort or generate 0.7% return on investment over 90 days.

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

Federated Municipal Ultrashort  vs.  The Short Term Municipal

Federated Municipal

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Federated Municipal Ultrashort are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Federated Municipal is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

The Short-term

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in The Short Term Municipal are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental drivers, The Short-term 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 The Short-term

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

The idea behind Federated Municipal Ultrashort and The Short Term Municipal 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.