Correlation Between Federated Equity and Federated Max-cap

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

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

Diversification Opportunities for Federated Equity and Federated Max-cap

0.95

Correlation Coefficient

Federated Equity  Federated Max-cap

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

Pair Corralation between Federated Equity and Federated Max-cap

Assuming the 90 days horizon Federated Equity Income is expected to under-perform the Federated Max-cap. But the mutual fund apears to be less risky and, when comparing its historical volatility, Federated Equity Income is 1.3 times less risky than Federated Max-cap. The mutual fund trades about -0.03 of its potential returns per unit of risk. The Federated Max Cap Index is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  781.00  in Federated Max Cap Index on February 15, 2025 and sell it today you would lose (27.00) from holding Federated Max Cap Index or give up 3.46% of portfolio value over 90 days.

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

Federated Equity Income  vs.  Federated Max Cap Index

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.

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.

Pair Trading with Federated Equity and Federated Max-cap

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

The idea behind Federated Equity Income and Federated Max Cap Index 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..