Correlation Between Federated Max-cap and Federated Equity

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

By analyzing existing cross correlation between Federated Max Cap Index and Federated Equity Income, you can compare the effects of market volatilities on Federated Max-cap and Federated Equity 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 Max-cap with a short position of Federated Equity. Check out your portfolio center. Please also check ongoing floating volatility patterns of Federated Max-cap and Federated Equity.

Diversification Opportunities for Federated Max-cap and Federated Equity

0.95

Correlation Coefficient

Federated Max-cap  Federated Equity

Almost no diversification

The 3 months correlation between Federated and Federated is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Federated Max Cap Index and Federated Equity Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federated Equity Income and Federated Max-cap 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 Max Cap Index are associated (or correlated) with Federated Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federated Equity Income has no effect on the direction of Federated Max-cap i.e., Federated Max-cap and Federated Equity go up and down completely randomly.

Pair Corralation between Federated Max-cap and Federated Equity

Assuming the 90 days horizon Federated Max-cap is expected to generate 1.53 times less return on investment than Federated Equity. In addition to that, Federated Max-cap is 1.41 times more volatile than Federated Equity Income. It trades about 0.01 of its total potential returns per unit of risk. Federated Equity Income is currently generating about 0.03 per unit of volatility. If you would invest  1,970  in Federated Equity Income on February 15, 2025 and sell it today you would earn a total of  245.00  from holding Federated Equity Income or generate 12.44% return on investment over 90 days.

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

Federated Max Cap Index  vs.  Federated Equity Income

Federated Max Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Federated Max Cap Index has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Federated Max-cap is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Federated Equity Income

Risk-Adjusted Performance

Very Weak

Over the last 90 days Federated Equity Income has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, Federated Equity 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 Max-cap and Federated Equity

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

The idea behind Federated Max Cap Index and Federated Equity Income 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.