Correlation Between Applied Finance and Rational Special

Can any of the company-specific risk be diversified away by investing in both Applied Finance and Rational Special 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 Rational Special 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 Rational Special Situations, you can compare the effects of market volatilities on Applied Finance and Rational Special 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 Rational Special. Check out your portfolio center. Please also check ongoing floating volatility patterns of Applied Finance and Rational Special.

Diversification Opportunities for Applied Finance and Rational Special

-0.71

Correlation Coefficient

Applied Finance  Rational Special

Pay attention - limited upside

The 3 months correlation between Applied and Rational is -0.71. Overlapping area represents the amount of risk that can be diversified away by holding Applied Finance Explorer and Rational Special Situations in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rational Special Sit 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 Rational Special. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rational Special Sit has no effect on the direction of Applied Finance i.e., Applied Finance and Rational Special go up and down completely randomly.

Pair Corralation between Applied Finance and Rational Special

Assuming the 90 days horizon Applied Finance Explorer is expected to under-perform the Rational Special. In addition to that, Applied Finance is 12.67 times more volatile than Rational Special Situations. It trades about -0.07 of its total potential returns per unit of risk. Rational Special Situations is currently generating about 0.26 per unit of volatility. If you would invest  1,793  in Rational Special Situations on December 30, 2024 and sell it today you would earn a total of  24.00  from holding Rational Special Situations or generate 1.34% return on investment over 90 days.

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

Applied Finance Explorer  vs.  Rational Special Situations

Applied Finance Explorer

Risk-Adjusted Performance

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.

Rational Special Sit

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Rational Special Situations are ranked lower than 20 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Rational Special 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 Rational Special

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

The idea behind Applied Finance Explorer and Rational Special Situations 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.

Check out your portfolio center.

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.