Correlation Between Applied Finance and Aristotle Funds

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

By analyzing existing cross correlation between Applied Finance Explorer and Aristotle Funds Series, you can compare the effects of market volatilities on Applied Finance and Aristotle Funds 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 Applied Finance with a short position of Aristotle Funds. Check out your portfolio center. Please also check ongoing floating volatility patterns of Applied Finance and Aristotle Funds.

Diversification Opportunities for Applied Finance and Aristotle Funds

0.98

Correlation Coefficient

Applied Finance  Aristotle Funds

Almost no diversification

The 3 months correlation between Applied and Aristotle is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Applied Finance Explorer and Aristotle Funds Series in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aristotle Funds Series and Applied Finance 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 Applied Finance Explorer are associated (or correlated) with Aristotle Funds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aristotle Funds Series has no effect on the direction of Applied Finance i.e., Applied Finance and Aristotle Funds go up and down completely randomly.

Pair Corralation between Applied Finance and Aristotle Funds

Assuming the 90 days horizon Applied Finance Explorer is expected to generate 1.39 times more return on investment than Aristotle Funds. However, Applied Finance is 1.39 times more volatile than Aristotle Funds Series. It trades about 0.05 of its potential returns per unit of risk. Aristotle Funds Series is currently generating about 0.03 per unit of risk. If you would invest  1,652  in Applied Finance Explorer on September 23, 2024 and sell it today you would earn a total of  559.00  from holding Applied Finance Explorer or generate 33.84% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	85.71%
Values	Daily Returns

Applied Finance Explorer  vs.  Aristotle Funds Series

Applied Finance Explorer

Risk-Adjusted Performance

0 of 100

Very Weak

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

Aristotle Funds Series

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Applied Finance and Aristotle Funds

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

The idea behind Applied Finance Explorer and Aristotle Funds Series 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.