Correlation Between SOUL and Federated Mortgage

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

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

Diversification Opportunities for SOUL and Federated Mortgage

0.15

Correlation Coefficient

SOUL  Federated Mortgage

Average diversification

The 3 months correlation between SOUL and Federated is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding SOUL and Federated Mortgage Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federated Mortgage and SOUL 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 SOUL are associated (or correlated) with Federated Mortgage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federated Mortgage has no effect on the direction of SOUL i.e., SOUL and Federated Mortgage go up and down completely randomly.

Pair Corralation between SOUL and Federated Mortgage

Assuming the 90 days trading horizon SOUL is expected to under-perform the Federated Mortgage. In addition to that, SOUL is 24.04 times more volatile than Federated Mortgage Fund. It trades about -0.1 of its total potential returns per unit of risk. Federated Mortgage Fund is currently generating about -0.18 per unit of volatility. If you would invest  810.00  in Federated Mortgage Fund on January 17, 2024 and sell it today you would lose (14.00) from holding Federated Mortgage Fund or give up 1.73% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

SOUL  vs.  Federated Mortgage Fund

SOUL

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in SOUL are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, SOUL exhibited solid returns over the last few months and may actually be approaching a breakup point.

Federated Mortgage

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with SOUL and Federated Mortgage

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

The idea behind SOUL and Federated Mortgage Fund 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.