Correlation Between Federated Short and Pear Tree

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

By analyzing existing cross correlation between Federated Short Term Income and Pear Tree Polaris, you can compare the effects of market volatilities on Federated Short and Pear Tree 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 Short with a short position of Pear Tree. Check out your portfolio center. Please also check ongoing floating volatility patterns of Federated Short and Pear Tree.

Diversification Opportunities for Federated Short and Pear Tree

0.09

Correlation Coefficient

Federated Short  Pear Tree

Significant diversification

The 3 months correlation between Federated and Pear is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Federated Short Term Income and Pear Tree Polaris in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pear Tree Polaris and Federated Short 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 Short Term Income are associated (or correlated) with Pear Tree. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pear Tree Polaris has no effect on the direction of Federated Short i.e., Federated Short and Pear Tree go up and down completely randomly.

Pair Corralation between Federated Short and Pear Tree

Assuming the 90 days horizon Federated Short Term Income is expected to generate 0.22 times more return on investment than Pear Tree. However, Federated Short Term Income is 4.63 times less risky than Pear Tree. It trades about 0.06 of its potential returns per unit of risk. Pear Tree Polaris is currently generating about -0.04 per unit of risk. If you would invest  847.00  in Federated Short Term Income on September 12, 2024 and sell it today you would earn a total of  4.00  from holding Federated Short Term Income or generate 0.47% return on investment over 90 days.

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

Federated Short Term Income  vs.  Pear Tree Polaris

Federated Short Term

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Federated Short Term Income are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong essential indicators, Federated Short is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pear Tree Polaris

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pear Tree Polaris has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Pear Tree 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 Short and Pear Tree

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

The idea behind Federated Short Term Income and Pear Tree Polaris 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.