Correlation Between Strategic Allocation: and Touchstone Large

Can any of the company-specific risk be diversified away by investing in both Strategic Allocation: and Touchstone Large 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 Strategic Allocation: and Touchstone Large into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Strategic Allocation Aggressive and Touchstone Large Cap, you can compare the effects of market volatilities on Strategic Allocation: and Touchstone Large 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 Strategic Allocation: with a short position of Touchstone Large. Check out your portfolio center. Please also check ongoing floating volatility patterns of Strategic Allocation: and Touchstone Large.

Diversification Opportunities for Strategic Allocation: and Touchstone Large

0.85

Correlation Coefficient

Strategic Allocation:  Touchstone Large

Very poor diversification

The 3 months correlation between Strategic and Touchstone is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Strategic Allocation Aggressiv and Touchstone Large Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Touchstone Large Cap and Strategic Allocation: 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 Strategic Allocation Aggressive are associated (or correlated) with Touchstone Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Touchstone Large Cap has no effect on the direction of Strategic Allocation: i.e., Strategic Allocation: and Touchstone Large go up and down completely randomly.

Pair Corralation between Strategic Allocation: and Touchstone Large

Assuming the 90 days horizon Strategic Allocation Aggressive is expected to under-perform the Touchstone Large. In addition to that, Strategic Allocation: is 1.07 times more volatile than Touchstone Large Cap. It trades about -0.04 of its total potential returns per unit of risk. Touchstone Large Cap is currently generating about -0.03 per unit of volatility. If you would invest  2,019  in Touchstone Large Cap on November 20, 2024 and sell it today you would lose (34.00) from holding Touchstone Large Cap or give up 1.68% of portfolio value over 90 days.

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

Strategic Allocation Aggressiv  vs.  Touchstone Large Cap

Strategic Allocation:

Risk-Adjusted Performance

Very Weak

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

Touchstone Large Cap

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Strategic Allocation: and Touchstone Large

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

The idea behind Strategic Allocation Aggressive and Touchstone Large Cap 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.