Correlation Between Us Government and Federated Emerging

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

By analyzing existing cross correlation between Us Government Plus and Federated Emerging Market, you can compare the effects of market volatilities on Us Government and Federated Emerging 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 Us Government with a short position of Federated Emerging. Check out your portfolio center. Please also check ongoing floating volatility patterns of Us Government and Federated Emerging.

Diversification Opportunities for Us Government and Federated Emerging

0.42

Correlation Coefficient

Us Government  Federated Emerging

Very weak diversification

The 3 months correlation between GVPIX and Federated is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Us Government Plus and Federated Emerging Market in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federated Emerging Market and Us Government 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 Us Government Plus are associated (or correlated) with Federated Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federated Emerging Market has no effect on the direction of Us Government i.e., Us Government and Federated Emerging go up and down completely randomly.

Pair Corralation between Us Government and Federated Emerging

Assuming the 90 days horizon Us Government is expected to generate 1.62 times less return on investment than Federated Emerging. In addition to that, Us Government is 2.78 times more volatile than Federated Emerging Market. It trades about 0.0 of its total potential returns per unit of risk. Federated Emerging Market is currently generating about 0.02 per unit of volatility. If you would invest  785.00  in Federated Emerging Market on February 3, 2025 and sell it today you would earn a total of  4.00  from holding Federated Emerging Market or generate 0.51% return on investment over 90 days.

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

Us Government Plus  vs.  Federated Emerging Market

Us Government Plus

Risk-Adjusted Performance

Very Weak

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

Federated Emerging Market

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Federated Emerging Market are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Federated Emerging is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Us Government and Federated Emerging

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

The idea behind Us Government Plus and Federated Emerging Market 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.