Correlation Between Federated Kaufmann and Federated Hermes

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

By analyzing existing cross correlation between Federated Kaufmann Large and Federated Hermes Smid, you can compare the effects of market volatilities on Federated Kaufmann and Federated Hermes 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 Kaufmann with a short position of Federated Hermes. Check out your portfolio center. Please also check ongoing floating volatility patterns of Federated Kaufmann and Federated Hermes.

Diversification Opportunities for Federated Kaufmann and Federated Hermes

0.94

Correlation Coefficient

Federated Kaufmann  Federated Hermes

Almost no diversification

The 3 months correlation between Federated and Federated is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Federated Kaufmann Large and Federated Hermes Smid in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federated Hermes Smid and Federated Kaufmann 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 Kaufmann Large are associated (or correlated) with Federated Hermes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federated Hermes Smid has no effect on the direction of Federated Kaufmann i.e., Federated Kaufmann and Federated Hermes go up and down completely randomly.

Pair Corralation between Federated Kaufmann and Federated Hermes

Assuming the 90 days horizon Federated Kaufmann Large is expected to generate 0.99 times more return on investment than Federated Hermes. However, Federated Kaufmann Large is 1.01 times less risky than Federated Hermes. It trades about 0.09 of its potential returns per unit of risk. Federated Hermes Smid is currently generating about 0.06 per unit of risk. If you would invest  1,733  in Federated Kaufmann Large on February 17, 2025 and sell it today you would earn a total of  157.00  from holding Federated Kaufmann Large or generate 9.06% return on investment over 90 days.

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

Federated Kaufmann Large  vs.  Federated Hermes Smid

Federated Kaufmann Large

Risk-Adjusted Performance

Very Weak

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

Federated Hermes Smid

Risk-Adjusted Performance

Very Weak

Over the last 90 days Federated Hermes Smid has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong primary indicators, Federated Hermes 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 Kaufmann and Federated Hermes

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

The idea behind Federated Kaufmann Large and Federated Hermes Smid 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.