Correlation Between Federal National and Federal Home

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

By analyzing existing cross correlation between Federal National Mortgage and Federal Home Loan, you can compare the effects of market volatilities on Federal National and Federal Home 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 Federal National with a short position of Federal Home. Check out your portfolio center. Please also check ongoing floating volatility patterns of Federal National and Federal Home.

Diversification Opportunities for Federal National and Federal Home

0.53

Correlation Coefficient

Federal National  Federal Home

Very weak diversification

The 3 months correlation between Federal and Federal is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Federal National Mortgage and Federal Home Loan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federal Home Loan and Federal National 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 Federal National Mortgage are associated (or correlated) with Federal Home. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federal Home Loan has no effect on the direction of Federal National i.e., Federal National and Federal Home go up and down completely randomly.

Pair Corralation between Federal National and Federal Home

If you would invest  535.00  in Federal Home Loan on February 2, 2024 and sell it today you would earn a total of  45.00  from holding Federal Home Loan or generate 8.41% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.65%
Values	Daily Returns

Federal National Mortgage  vs.  Federal Home Loan

Federal National Mortgage

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Federal National Mortgage has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, Federal National is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Federal Home Loan

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Federal Home Loan are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong fundamental indicators, Federal Home is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Federal National and Federal Home

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

The idea behind Federal National Mortgage and Federal Home Loan 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.