Correlation Between Federal National and MSAD Insurance

Can any of the company-specific risk be diversified away by investing in both Federal National and MSAD Insurance 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 MSAD Insurance 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 MSAD Insurance Group, you can compare the effects of market volatilities on Federal National and MSAD Insurance 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 MSAD Insurance. Check out your portfolio center. Please also check ongoing floating volatility patterns of Federal National and MSAD Insurance.

Diversification Opportunities for Federal National and MSAD Insurance

0.05

Correlation Coefficient

Federal National  MSAD Insurance

Significant diversification

The 3 months correlation between Federal and MSAD is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Federal National Mortgage and MSAD Insurance Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MSAD Insurance Group 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 MSAD Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MSAD Insurance Group has no effect on the direction of Federal National i.e., Federal National and MSAD Insurance go up and down completely randomly.

Pair Corralation between Federal National and MSAD Insurance

Assuming the 90 days horizon Federal National is expected to generate 18.25 times less return on investment than MSAD Insurance. But when comparing it to its historical volatility, Federal National Mortgage is 12.69 times less risky than MSAD Insurance. It trades about 0.12 of its potential returns per unit of risk. MSAD Insurance Group is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  3,745  in MSAD Insurance Group on February 1, 2024 and sell it today you would lose (1,964) from holding MSAD Insurance Group or give up 52.44% of portfolio value over 90 days.

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

Federal National Mortgage  vs.  MSAD Insurance Group

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.

MSAD Insurance Group

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in MSAD Insurance Group are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain fundamental indicators, MSAD Insurance reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Federal National and MSAD Insurance

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

The idea behind Federal National Mortgage and MSAD Insurance Group 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.